(highlight:: Expected values are a tool in statistics that captures what the outcome will be “on average” when we can’t predict something with certainty. To calculate an action’s expected value, we take the possible consequences of an action, work out how valuable they would be, multiply them by their probability of happening, and then add them all together.
For example, imagine that you could buy a lottery ticket for $1 that has a 1% chance of winning $50. Buying the ticket has an expected value of minus 49 cents. This is because the 1% of $50 is only worth 50 cents, but the 99% of losing a dollar is worth minus 99 cents. Therefore, it may not be a great investment… you probably shouldn’t buy the ticket.)
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(highlight:: Expected values are a tool in statistics that captures what the outcome will be “on average” when we can’t predict something with certainty. To calculate an action’s expected value, we take the possible consequences of an action, work out how valuable they would be, multiply them by their probability of happening, and then add them all together.
For example, imagine that you could buy a lottery ticket for $1 that has a 1% chance of winning $50. Buying the ticket has an expected value of minus 49 cents. This is because the 1% of $50 is only worth 50 cents, but the 99% of losing a dollar is worth minus 99 cents. Therefore, it may not be a great investment… you probably shouldn’t buy the ticket.)
- View Highlight
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