Quizzes & Puzzles1 min ago
Statistics: Decision Analysis
2 Answers
A cereal manufacturer mails out 5,000,000 questionnaires to potential customers with the chance that by responding to the questionnaire, there is a
chance of winning $3,000,000. Is it worth the $0.42 postage to each
customer, if, indeed, everyone responds? Justify your answer.
chance of winning $3,000,000. Is it worth the $0.42 postage to each
customer, if, indeed, everyone responds? Justify your answer.
Answers
Best Answer
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For more on marking an answer as the "Best Answer", please visit our FAQ.Suppose you get all 5 million questionnaires. It would cost you $5,000,000 x $0.42 = $2.1 million to post them all separately. In return you'd win $3,000,000 dollars. Sounds a good deal.
Now think of it in terms of expected return per questionnaire. The chance of yours being picked is 1 in 5 million. The expected return based on a $3,000,000 prize (assuming each questionnaire has an equal chance of winning and all take part) is $0.60 dollars ( 3 million return x one in 5 million chance). The expected return of $0.60 is greater than the cost $0.42 of the postage. So it is worth it.
Now think of it in terms of expected return per questionnaire. The chance of yours being picked is 1 in 5 million. The expected return based on a $3,000,000 prize (assuming each questionnaire has an equal chance of winning and all take part) is $0.60 dollars ( 3 million return x one in 5 million chance). The expected return of $0.60 is greater than the cost $0.42 of the postage. So it is worth it.