Miguel has four chips, two have the number "1", one has the number "3" and the other has the number "5"
If the experiment is "choosing two chips and looking at their numbers" there are the following possible outcomes:
The sample space for the experiment has 7 possible combinations.
Be X: the amount of money Miguel will receive or owe.
If two chips with the same number are chosen he will receive $2
If the chips have different number he will owe $1
Looking at the possible outcomes listed above, out of the 7, in only one he will select the same number (1,1)
So the probability of him receiving $2 will be 1/7
Now out of the 7 possible outcomes, 6 will make Miguel owe $1, so you can calculate its probability as: 6/7
xi | $2 | -$1
P(xi) | 1/7 | 6/7
To calculate the expected value or mean you have to use the following formula:
= ∑[xi*P(xi)]= (2*1/7)(-1*6/7)= -4/7= $-0.57
The expected value is $-0.57, meaning that Miguel can expect to owe $0.57 at the end of the game.
To make the game fair you have to increase the probability of obtaining two chips with the same number. Any probability close to 50% will make the game easier. For example if you change the experiment so that for earning $2 the probability is 4/7 and for owing $1 the probability is 3/7, the expected earnings will be: