Case Study: Sampling the Roulette at Monte Carlo

1 Each bet results in a gain of (– $5) if he loses and $175 if he wins. Thus, the probability distribution of the
gain x on a single $5 bet is

x p(x)
–5 37/38
175 1/38

2 Then
E ( x) = ( −5)( 37 38) + 175 (1 38) =
∑ xp ( x) = −.2632
σ =∑ x p( x) − µ 2 =( −5 ) ( 37 38 ) + (175 ) (1 38 ) − ( −.2632 ) =830.1939
2 2 2 2 2
x

3 The gain for the evening is the sum S = ∑ xi of the gains or losses for the 200 bets of $5 each. When the
sample size is large, the Central Limit Theorem assures that this sum will be approximately normal with mean
µS = nµ =200 ( −.2632 ) = −$52.64
and variance
σ S2 n=
= σ x2 200(830.1939)
= 166, 038.78
=σS =
166, 038.78 407.48

The total winnings will vary from –$1000 (if the gambler loses all 200 bets) to $35,000 (if the gambler wins all 200
bets), a range of $36,000. However, most of the winnings (95%) will fall in the interval

µ S ± 2σ S =
−52.64 ± 2(407.43)

or –$867.50 to $762.22. The large gains are highly improbable.

4 The loss of $1000 on any one night will occur only if there are no wins in 200 bets of $5. The probability
200
 37 
of this event is   = .005 . Define y to be the number of evenings on which a loss of $1000 occurs. Then y has
 38 
a binomial distribution with p = .005 and n = 365 . Using the Poisson approximation to the binomial with
µ np
= = 1.825 , the probability of interest is approximately
(1.825) e −1.825
7

p (7) ≈ =
.002
7!
which is highly improbable.

5 The largest evening’s winnings, $1160, is not surprising. It lies

1160 − ( −52.64 )
=z = 2.98
407.43
standard deviations above the mean, so that
P ( winnings ≥ 1160 ) =
P ( z ≥ 2.98 ) =
1 − .9986 =
.0014
for any one evening. The probability of observing winnings of $1160 or greater on one evening out of 365 is then
approximated using the Poisson approximation= with µ 365(.0014)
= .511 or
(.511) e −.511
1

p (1) ≈ =
.3065
1!