What is the expected value of a coin toss game where you win $2 for each heads and lose $3 for each tails?
1 Answer
Nov 3, 2015
The explanation below is based on the assumption that a fair coin is tossed.
Explanation:
When a fair coin is tossed, p(H) =
For getting a head, the winning is $2 and for a tail, the loss is $3.
So X is a random variable that takes values 2 or -3.with probability#1/2# each.
The expected value is obtained as E(X) = 2.#1/2# - 3.#1/2# .
i.e. E(X) = -.5 or loss of $0.5
