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Statistics -> Variance and Linear Combinations

  1. Sep 19, 2005 #1
    Having a lot of trouble with a particular problem in the topic of variance. The problem is:

    "Suppose you are organizing a game where you charge players $2 to roll two dice and then you pay them the difference in scores. What is the variance in your profit from each game? If you are playing a game in which you have positive expected winnings, would you prefer a small or large variance in the winnings?"

    I already calculated the variance (more details of the problem were not mentioned b/c I already calculated the variance) and it was around 2.06 and the expected value (mean) is 1.94. I would guess a larger variance because then you can take a chance at trying to get higher values while knowing that you have a good chance of getting a positive income in the end. But I keep second-guesing myself of that and I am just not sure, lol.

    Also, having a lot of trouble with linear combinations. For example, I have a problem like this:

    Suppose that the random variable X has a probability density function of f(x) = 2x for 0 <= x <= 1. Find the PDF and the expectation of the random variable Y in the following cases:

    a. Y = X^3

    There are 3 more parts but I can do those myself if I can just figure out how to do one. I just have no idea where to start. I read the book and the notes and still having trouble figuring out what to do here. I guess I need to say for example:

    f(x^3) = (2x)^3 = 8x^2 would be the new PDF?

    and ...

    E(x^3) = (E(x))^3 = ... ?

    I don't even know what I am doing ... lol.
  2. jcsd
  3. Sep 20, 2005 #2
    I guess I need to find the expectation value for the second problem first before doing anything, so:

    integral of x*2x = integral of 2x^2 = 2x^3/3 between 1 and 0 = 2(1)^3/3 = (2/3) = .75

    So from there I would just say (.75)^3 as the answer for the expectation value for Y = X^3?
  4. Sep 21, 2005 #3
    Anyone? Still isn't making sense to me.
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