Unit/Topic: Probability & Decision Making Expected Value: Calculating mathematical fairness, risks, and payoffs to make informed choices in games of chance and consumer decisions.
A game costs $2 to play. You have a 25% chance of winning $10 and a 75% chance of winning $0.
Calculate the expected winnings before subtracting the cost.
What does expected value represent?
Using the same game, subtract the $2 cost to play. What is the net expected value?
Based on the net expected value, is this game favorable, unfavorable, or fair for the player?
Explain your reasoning.
A game gives players a 20% chance to win $15 and an 80% chance to win $0. What should the cost to play be if the game is mathematically fair?
A phone insurance plan costs $12 per month. There is a 5% monthly chance that a repair costing $200 will be needed.
Why is expected value useful when making decisions about games, insurance, warranties, or other real-world risks?