Expected Value

• Expected value is the result of an experiment conducted over the long run.
• Don't think put a quarter in a slot machine and pull the lever once.
• Think put quarters in slot machines all day
• $E = \Sigma P_iA_i$
  • $P_i$ is the probability of event i
  • $A_i$ is the profit or loss from event i
  • $\Sigma P_i = 1$
• The Fair Price is the amount to be paid that will result in an expected value of $0.
• Fair Price = expected value + cost to play
• Do problems page 658-661