Why or Why Not?
Though the situation is somewhat far-fetched, suppose you are going to the drugstore to buy medicine for a friend who will die without it. You have only $10—exactly what the medicine costs. Outside the drugstore a young man is playing three-card monte, a simple game in which the dealer shows you three cards, turns them over, shifts them briefly from hand to hand, and then lays them out, face down, on the top of a box. You are supposed to identify a particular card (usually the ace of spades); and, if you do, you are paid even money. You yourself are a magician and know the sleight-of-hand trick that fools most people, and you are sure that you can guess the card correctly nine times out of ten. First, what is the expected monetary value of a bet of $10? In this context, would it be reasonable to make this bet? Why or why not?
Provide an example of your own where a bet can be reasonable even though the expected monetary value is unfavorable. Then provide another example where the bet is unreasonable even though the expected monetary value is favorable. Explain what makes these bets reasonable or unreasonable.
