Lucy offers to play the following game with Charlie: "Let us show dimes to each other, each choosing either heads or tails. If we both show heads, I pay you $3. If we both show tails, I pay you $1. If the two don’t match, you pay me $2." Charlie reasons as follows. "The probability of both heads is 1/4, in which case I get $3. The probability of both tails is 1/4, in which case I get $1. The probability of no match is 1/2, and in that case I pay $2. So it is a fair game." Is he right? If not, (a) why not, and (b) what is Lucy’s expected profit from the game?

(a)Charlie is right

(b)$0

Step-by-step explanation:

(a)A game is said to be a fair game when the probability of winning is equal to the probability of losing. Mathematically, a game is said to be fair when the expected value is zero.

In the game, the possible outcomes are: HH, HT, TH and TT.

Charlie wins when the outcome is HH, TT

Lucy wins when the outcome is HT or TH

Therefore, the game is fair. Charlie is right.

(b)

If the outcome is HH, Lucy pays $3.

If the outcome is HT or TH, Lucy gets $2.

If the outcome is TT, Lucy pays $1.

The probability distribution of Lucy's profit is given below:

Expected Profit

Lucy's expected profit from the game is $0.

cosine

step-by-step explanation: