Answer to Question #89668 in Economics of Enterprise for DeLisa A. Watkins

Question

A multiple choice test awards 1 point for a correct answers and penalizes 0.25 points for an incorrect answer. If you have to make a random guess and there are five possible answers, what is the expected value of guessing?

Answer 1

If you have to make a random guess and there are five possible answers, then the expected value of guessing is: 1 - 0.25 - 0.25 - 0.25 - 0.25 = 0 points.