What is the expected value of a coin toss game where you win $2 for each heads and lose $3 for each tails?
The explanation below is based on the assumption that a fair coin is tossed.
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
The expected value is obtained as E(X) = 2.
#1/2#- 3. #1/2#.
i.e. E(X) = -.5 or loss of $0.5