Standby Vouchers

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Question

A tiny tasting event has just two seats, but five customers are booked. One customer, A, is certain to attend. B, C, D and E attend independently with probabilities 3/4, 1/2, 1/2 and 1/4 respectively. These are the only customers; non-attendees owe nothing and receive no voucher.

If more than two attend, the organiser admits customers in booking order A, B, C, D, E and denies the later bookings until exactly two remain. A denied customer receives a cash voucher of £200 for B, £120 for C, £80 for D or £40 for E. The organiser wants to budget for vouchers before anyone arrives.

Find the expected total voucher payment. Why is multiplying a single average voucher by the expected number of excess attendees generally unsafe here?

Hint 1

For each person, find the event that this particular person attends but is denied entry; use indicator variables for individual vouchers.

Because A always attends, B can never be denied. C is denied when B and C arrive; D is denied when D arrives with B or C; E is denied when E arrives with at least one of B,C,D.

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