A mathematically “fair bet” is one in which a gambler bets, say $100, for a 10 p

Question

A mathematically “fair bet” is one in which a gambler bets, say $100, for a 10 percent chance to win $1000 dollars ($100 = .10 x 1000). Assuming diminishing marginal utility of dollars, this is not a fair bet in terms of utility because

A. the utility of the $100 used to make the bet is less than the $900 that you might gain if you win the bet.

B. the amount you can gain exceeds the amount that you bet.

C. the chance of winning is too low.

D. the utility of the $100 used to make the bet is greater than the $900 that you might gain if you win the bet.

When the “house” takes a cut of each dollar bet, the bet is

A. less fair because the chance of winning is reduced.

B. less fair because the winnings are reduced.

C. unchanged in terms of fairness or the odds of winning.

D. more fair because the ‘house’ makes some money too.

Explanation / Answer

the utility of the $100 used to make the bet is greater than the $900 that you might gain if you win the bet.

explain=Because the marginal utility of money diminishes the more you have, the utility of the $100 used to make the bet is greater than the $900 that you might gain ($1000 - $100) if you win the bet.

less fair because the winnings are reduced.

explain: when the “house” takes its cut, because the $100 bet has the possibility of yielding less than $100 in winnings.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.