2. (How to play the state lottery) In a certain state lottery, people select eight numbers in...

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2. (How to play the state lottery) In a certain state lottery, people select eight numbers in advance of a random drawing of six numbers. If someone's selections include the six drawn, they receive a large prize, but this prize is shared with other winners. Victor has discovered that some numbers are "unpopular" in that they are rarely chosen by lottery players He has computed that by selecting these numbers he has one charce in a million of winning $10 million for a $1 lottery ticket He has odds of 10 to 1 in his favor Victor's current wealth is $100,000, and he wants to maximize the expected logarithm of wealth.

(a) Should Victor buy a lottery ticket?

(b) Victor knows that he can buy a fraction of a ticket by forming a pool with friends. What fraction of a ticket would be optimal?

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Investment Science

ISBN: 9780195391060

1st International Edition

Authors: David G. Luenberger

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