Does the standard deviation s do a good job of capturing

Reference no: EM13176714

Consider a purely probabilistic game that you have the opportunity to play. Each time you play there are n potential known outcomes x1, x2, ..., xn (each of which is a specified gain or loss of dollars according to whether xi is positive or negative) These outcomes x1, x2, ..., xn occur with the known probabilities p1, p2, ..., pn respectively (where p1 + p2 + ... + pn = 1.0 and 0 <= pi <= 1 for each i).
Furthermore, assume that each play of the game takes up one hour of your time, and that only you can play the game (you can't hire someone to play for you).
Let E be the game's expected value and S be the game's standard deviation.
1. In the real world, should a rational player always play this game whenever the expected value E is not negative? Why or why not?
2. Does the standard deviation S do a good job of capturing how risky this game is? Why or why not?
3. If YOU PERSONALLY had to decide whether or not to play this game, how would you decide?

Reference no: EM13176714

Questions Cloud

Fumaric acid and a diastereomer of maleic acid : Fumaric acid, a diastereomer of maleic acid, requires a much higher temperature before it dehydrates; when it does, it also yields maleic anhydride.

State solution containing the weak base methylamine : Consider the reaction that occurs when a solution containing hydrochloric acid (HCl) is added to a solution containing the weak base methylamine (CH3NH2).

Define herfindahl index : where si is the market shares of the i-th firm in the industry. The Herfindahl index for A is 100. The Herfindahl index for A is 3,800. The Herfindahl index for B is 3,600 The Herfindahl index for A is greater than for B. The Herfindahl index is ..

Determine the average return and the standard deviation : Which stock has the highest expected return and which one has the highest risk in terms of volatility and determine the average return and the standard deviation of returns for each stock

Does the standard deviation s do a good job of capturing : Consider a purely probabilistic game that you have the opportunity to play. Each time you play there are n potential known outcomes x1, x2, ..., xn (each of which is a specified gain or loss of dollars according to whether xi is positive or negati..

The solution of the salt called ferrous ammonium sulfate : The concentration of ammonium ion in the solution of the salt called ferrous ammonium sulfate

State the standardized perchloric acid solution : The standardized perchloric acid solution is then used to titrate 41.10 mL of a solution of sodium lactate (NaC2H5OCOO). An endpoint is reached when 18.22 mL of perchloric acid has been added.

State sodium hydrogen carbonate : A buffer solution is prepared by mixing 47.5 mL of 0.772 M carbonic acid with 58.8 mL of 0.0346 M sodium hydrogen carbonate. 1. Calculate the pH (to two decimal places) of this solution. Assume the 5% approximation is valid and that the volumes are a..

Explain marginal rate of substitution : . Consider a consumer who is always willing to substitute four pounds of a generic store-brand sugar for two pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution between store-brand and producer-br..

User Account

All Pages