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Game / Coin Flip

Game / Coin Flip. We will present two games. Game 1. We flip coin, in case of coming with a heads we win 2 NOK and with a tails we lose 1 NOK. We can calculate the expected value of the game that becomes 0,5 NOK. The probability for each outcome is 50%. Heads : Wins 2 NOK

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Game / Coin Flip

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  1. Game / Coin Flip We will present two games. Game 1 We flip coin, in case of coming with a heads we win 2 NOK and with a tails we lose 1 NOK We can calculate the expected value of the game that becomes 0,5 NOK The probability for each outcome is 50%. Heads : Wins 2 NOK Tail : Loses 1 NOK Expected value: 2 x 0,5 + (-1 x 0,5) = 0,5 NOK Http://www.prosjektledelse.ntnu.no

  2. Game 2 is similar, but with little different conditions.by tossing a oin one may win 20 mill NOK for heads and lose 10 mill NOK for a tail. A preriquisit in this game is our wealth equal to 10 mill NOK. Probability for each outcome is 50%. We can therefor calculate the expected value of the game that becomes 5 mill NOK. Game 2 Heads : Wins 20 mill. NOK Tails : Loses 10 mill. NOK Expected value : 20 x 0,5 + (-10 x 0,5) = 5 mill. NOK Http://www.prosjektledelse.ntnu.no

  3. Still majority will say no to game 2, when its value is not larger than risking whole the wealth. We say that participants have risk aversion. Both games have positive expected value, respectively 0,5 and 5 million NOK and it is advantagous. Game 1 Expected value: 2 x 0,5 + (-1 x 0,5) = 0,5 NOK Game 2 Expected value: 20 x 0,5 + (-10 x 0,5) = 5 mill. NOK Http://www.prosjektledelse.ntnu.no

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