Question 1110506: At many airports, a person can buy a $30 insurance policy that eould cover the cost of their ticket if any changes are made. There is a 7% chance that you should be reimbursed $500 because of a flight change. What is your expected gain or loss? Should you buy the insurance?
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! At many airports, a person can buy a $30 insurance policy that would cover the cost of their ticket if any changes are made. There is a 7% chance that you should be reimbursed $500 because of a flight change. What is your expected gain or loss? Should you buy the insurance?
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Random "winnings"::: -30....470
Probabilities:: .....0.93....0.07
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Expected "winnings" :: [(93*(-30) + 7(470)]/100 = 500/100 = $5.00
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Since the expected value is positive, buy the insurance.
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Cheers,
Stan H.
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