Practice question · Numerical answer
Option A pays 100 with probability 0.5, else 0. Option B pays 40 for sure. Compute the difference .
Hints
- .
- .
Show the answer
10 (answers within ±0.5 count)
Why
, : the gamble is worth 10 more on average. Whether a real manager should take it depends on risk tolerance and repetition. EV is the start of the argument, not the end.
Practise Decision Making
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