Expected value

• From last time, odds, unless stated otherwise, are odds against.
• Expected value is the profit or loss we expect to gain if we perform an experiment over the long run.
• This is useful in predicting how we should run a business
• Let P_i be the probability of event i
• Let A_i be the profit or loss from event i
• E = P₁ A₁ + P₂A₂ ... + P_nA_n
• Problem 12
• Problem 16
• Problem 28
• The Fair Price is the price to pay a game so that the expected value is zero.
• Fair Price = expected value + cost to play
• Problem 42

Homework