Order the answer to: You are offered the following gamble based on coin flips.

Order the answer to: You are offered the following…

Question	You are offered the following gamble based on coin flips. If the first heads occurs on the first flip, you get $2. If the first heads occurs on the second flip you get $4, and so on so that if the first head is on the Nth flip, you get $2N. The game continues until there is a heads. What is the expected value of this gamble? When offered, most people say they would only pay less than $10 to play this game. What are two reasons why people are willing to pay so much less than the expected value?
Subject	business-economics

Question

You are offered the following gamble based on coin flips. If the first heads occurs on the first flip, you get $2. If the first heads occurs on the second flip you get $4, and so on so that if the first head is on the Nth flip, you get $2N. The game continues until there is a heads. What is the expected value of this gamble? When offered, most people say they would only pay less than $10 to play this game. What are two reasons why people are willing to pay so much less than the expected value?

Subject

business-economics

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