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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 - PowerPoint PPT Presentation
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Http://www.prosjektledelse.ntnu.no ProsjektstyringProsjektstyring
Game / Coin Flip
Heads : Wins 2 NOK
Tail : Loses 1 NOK
We will present two games.
We flip coin, in case of coming with a heads we win 2 NOK and with a tails we lose 1 NOK
The probability for each outcome is 50%.
We can calculate the expected value of the game that becomes 0,5 NOK
Expected value: 2 x 0,5 + (-1 x 0,5) = 0,5 NOK
Game 1
Http://www.prosjektledelse.ntnu.no ProsjektstyringProsjektstyring
Heads : Wins 20 mill. NOK
Tails : Loses 10 mill. NOK
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.
Expected value : 20 x 0,5 + (-10 x 0,5) = 5 mill. NOK
Game 2
Http://www.prosjektledelse.ntnu.no ProsjektstyringProsjektstyring
Expected value: 2 x 0,5 + (-1 x 0,5) = 0,5 NOK
Expected value: 20 x 0,5 + (-10 x 0,5) = 5 mill. NOK
Game 1
Game 2
Both games have positive expected value, respectively 0,5 and 5 million NOK and it is advantagous.
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.
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