fair gamble

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A gamble with an expected pay-off of zero. For example, consider a gamble that involves winning £2 with probability 1/3 and losing £1 with probability 2/3. The expected pay-off is (1/3)2 − (2/3)1 = 0. A fair gamble is said to have actuarially fair odds. Someone who is strictly risk-averse will not accept a fair gamble.

Subjects: Economics.

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