Expected Value - buyer

Question

You can buy a lottery ticket for $1000. The odds are as follows: 

1 in 10 tickets will pay $500.

1 in 100 tickets will pay $1000.

1 in 1000 tickets will pay $200,000.

1 in 10,000 tickets will pay $1,000,000.

1 in 100,000 tickets will pay $10,000,000.

a. What is the expected value of the ticket to you?

b. Should you by the ticket? Explain your decision.

 

Thank you in advance for your help!

Answer 1

There is no "expected value", as an honest drawing will be random, and the results cannot be predicted. The most favorable odds are 1 in 100 to win $1000, which would be a break-even point. All of the other odds are less likely to win.

 

Regarding the judgment to buy a ticket, a person would have to decide whether an expenditure of $1000 is a good choice in view of the odds.