- #1

mr.me

- 49

- 0

Can you explain it?

Suppose you know there are two bills in a hat and that one bill is twice the size of the other bill. You draw one bill from the hat and it is a $10 bill. You are then given the option to exchange you $10 bill for the other bill in the hat…do you make the exchange?

Based on expected values, you should make the exchange. The expected value of the trade is 0.5*5 + 0.5*20 = 12.25 given the other bill is half the time a $5 bill and half the time a $20 bill.