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salonijain
Member
can someone explain favourable, fair,unfavourable risks in an easier way. i could not understand the explanation in the book. it would be a great help
pleasee
pleasee
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Graham Aylott
Member
Hi,
I presume you're referring to the discussion on pages 86-87 in the textbook, where it talks about favourable, fair and unfavourable odds.
Favourable odds are where you expect to make a gain on average, eg if you could repeat the risky event a large number of times. An example here would be if you were tossing a coin and had the chance to win £2 if you call correctly, but lose £1 if you call incorrectly. These odds are favourable because the expected gain from a single toss of the coin is:
0.5 * £2 + 0.5 * £1 = +£0.50
and so if you tossed the coin a large number of times, you would expect to make a gain on average of 50p per coin toss.
In this coin tossing example, fair odds would be where you win £1 if you call correctly, but lose £1 if you call incorrectly, as on average you would expect to neither make a gain or a loss.
Likewise, unfavourable odds would be where you win £1 if you call correctly, but lose £2 if you call incorrectly, as on average you would expect to make a loss of 50p per coin toss.
I hope this makes things clear.
Graham
I presume you're referring to the discussion on pages 86-87 in the textbook, where it talks about favourable, fair and unfavourable odds.
Favourable odds are where you expect to make a gain on average, eg if you could repeat the risky event a large number of times. An example here would be if you were tossing a coin and had the chance to win £2 if you call correctly, but lose £1 if you call incorrectly. These odds are favourable because the expected gain from a single toss of the coin is:
0.5 * £2 + 0.5 * £1 = +£0.50
and so if you tossed the coin a large number of times, you would expect to make a gain on average of 50p per coin toss.
In this coin tossing example, fair odds would be where you win £1 if you call correctly, but lose £1 if you call incorrectly, as on average you would expect to neither make a gain or a loss.
Likewise, unfavourable odds would be where you win £1 if you call correctly, but lose £2 if you call incorrectly, as on average you would expect to make a loss of 50p per coin toss.
I hope this makes things clear.
Graham
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salonijain
Member
thanks alot!
it helped
it helped