Licensed to Ill
by Mathalicious

When deciding whether or not to buy a product warranty, we can use something called the expected value. For instance, if there’s a 10% probability that a $1500 laptop will break, we say the warranty has an expected value of 0.1($1500) = $150. If the warranty costs less than this, we should buy it. If it costs more, we shouldn’t.

But we can use expected value for more than computers. Imagine a country with four people, where the only medical procedure is a $40,000 heart surgery. Calculate the expected value of health insurance for each person. Then, who do you think wants insurance the most, and whom does the insurance company want the most?