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HW 1 Solutions

The document contains 6 problems involving probability distributions and expected values: 1. Draws the probability distribution for the number of tails in 3 coin tosses. 2. Calculates the expected number of heads in 3 coin tosses as 1.5. 3. Finds the number of slips with a value of 2, given the expected value is 3.25. 4. Calculates the expected value of a weighted coin flip as $1.25. 5. Lists the probability distribution for the sum of rolling 2 dice. 6. Asks to create risk profiles for all strategies in a decision tree and determine if one is stochastically dominant.

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zainab alshatter
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89 views3 pages

HW 1 Solutions

The document contains 6 problems involving probability distributions and expected values: 1. Draws the probability distribution for the number of tails in 3 coin tosses. 2. Calculates the expected number of heads in 3 coin tosses as 1.5. 3. Finds the number of slips with a value of 2, given the expected value is 3.25. 4. Calculates the expected value of a weighted coin flip as $1.25. 5. Lists the probability distribution for the sum of rolling 2 dice. 6. Asks to create risk profiles for all strategies in a decision tree and determine if one is stochastically dominant.

Uploaded by

zainab alshatter
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 1

Draw the Cumulative Risk Profile for a random variable that represents the number of tails in 3 tosses of a fair coin.

The sample space for 3 tosses of a fair coin is:


{HHH, HHT, HTH, HTT , THH, THT, TTH, TTT}
Define a r.v. X = Number of tails in 3 tosses of a fair coin
From the sample space we can see that X takes on values 0, 1, 2 and 3 with the probability of:
P(X=0) = 1/8
P(X=1) = 3/8
P(X=2) = 3/8
P(X=3) = 1/8
Please note that probabilities as seen in above always add up to 1.

First, we draw the probability distribution of X:

Problem 2
If we toss a fair coin 3 times, how many heads would you expect to get? (Must show calculations to get credit)

Let X = Number of heads in 3 tosses; The values that random variable can take on and its associated probabilities
are exactly the same as in problem 1.

Hence E(X) = 0(1/8) +1(3/8) + 2(3/8) + 3(1/8) = 3/8 + 6/8 + 3/8 = 12/8 = 1.5.
We expect to get 1.5 heads!
Problem 3
Suppose I have a bag with 12 slips of paper in it. Some of the slips have a 2 on them, and the rest have a 7 on them.
If the expected value of the number shown on a slip randomly drawn from the bag is 3.25, then how many slips have
a 2?

Y= Number shown on a slip of paper


Y takes on values 2, and 7.

Now let x = number of slips with a 2 written on them, then

P(Y=2) = x/12
P(Y=7) = (12-x)/12

E(Y) = 2(x/12) + 7[(12-x)/12] = 3.25

Therefore x = 9

Problem 4
Suppose you have a weighted coin in which heads comes up with probability ¾ and tails with probability 1/4. If you
flip heads, you win $2, but if you flip tails, you lose $1. What is the expected value of a coin flip?

Let X = Your winnings for a single game


X takes on two values of $2 and -$1. P(X = $2) = ¾ and P(X=-$1) = 1/4

E(X) = (3/4)($2) + (1/4)(−$1) = $1.50 − $0.25 = $1.25

Problem 5
Suppose that we roll an unbiased die twice and observe the face on each roll. Define a random variable that
represents the sum of the two faces. Show the probability distribution of Y.

The sample space is:


S = {(1, 1), (1, 2), (1, 3), (1, 4), (1, 5), (1, 6), (2, 1), (2, 2), (2, 3), (2, 4), (2, 5), (2, 6), (3, 1), (3, 2), (3, 3), (3, 4), (3,
5), (3, 6), (4, 1), (4, 2), (4, 3), (4, 4), (4, 5), (4, 6), (5, 1), (5, 2), (5, 3), (5, 4), (5, 5), (5, 6), (6, 1), (6, 2), (6, 3), (6, 4),
(6, 5), (6, 6)}.

Let the random variable Y record the sum of the two faces.
Here, Y takes on values 2, 3, ..., 12}
P(Y =2) = P(1, 1)= 1/36.
P(Y =3) = P (1, 2) + P(2, 1) = 2/36
P(Y =4) = P (1, 3) + P(3, 1) + P(2, 2) = 3/36
We can evaluate Y = 5 through 12 similarly like above.
P(Y =5) = 4/36
P(Y =6) = 5/36
P(Y =7) = 6/36
P(Y =8) = 5/36
P(Y =9) = 4/36
P(Y =10) = 3/36
p(Y =11) = 2/36.
P(Y =12) = 1/36.

Problem 6
Create risk profiles and cumulative risk profiles for all possible strategies of decision tree. Is one
strategy stochastically dominant? Explain.

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