We are making a casino game and need to determine expected value to see if we will be profitable. My teacher says our expected value must be a small positive number so that it is fair and that the casino is making money.
HOWEVER, if you were to calculate the expected value, for example, rolling a die, assuming landing on a 1 will take away 5 points, and anything else gives you no points. Therefore your expected value will be negative. Therefore meaning you will LOSE money and the house should gain money.
So shouldn't a negative expected value be better for the casino?
Thanks in advance!
Best Answer
You're considering the expected value from the perspective of the player while your teacher is considering the expected value from the perspective of the casino. The two expected values will have the same magnitude but differ in sign. Using your terminology, a negative expected value would indeed be better for the casino (the player would 'expect' to lose a little money, so the casino would gain money).