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For a daily lottery, players pay $1 and pick any three-digit number. Then a number (between 000 and 999) is...

3. For a daily lottery, players pay $1 and pick any three-digit number. Then a number (between 000 and 999) is randomly selected. If a player's number is selected exactly, the player wins $500. If all three digits of the player's number are selected but in the wrong order (for example, 321 instead of 123), then the player wins $50.
(a) Find the expected gain when a player plays once and picks the number 789.
(b) Is this a fair game? Why or why not?
(c) Would it help if the player chose a different number like 267?

Answer

  1. To find the expected gain, calculate the probability of winning exactly, winning with the wrong order, and losing, then multiply by the respective gains and sum them up.

    Probability of winning exactly: 1/1000
    Probability of winning with wrong order: 6/1000 (since there are 6 permutations of a 3-digit number, but 1 is the exact match)
    Probability of losing: 993/1000

    Expected gain = (1/1000 * $500) + (6/1000 * $50) + (993/1000 * -$1)
    = $0.50 + $0.30 - $0.993
    = -$0.193

    The expected gain is -$0.193.

  2. No, this is not a fair game. A fair game would have an expected gain of $0, but since the expected gain is negative, the player is expected to lose money over time.

  3. Choosing a different number like 267 does not change the probabilities or the expected gain, as each number has the same probability of being selected. Therefore, it would not help to choose a different number.

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