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Expected Value in Probability and Decision Making
Formula
The expected value is the long-run average outcome of a random variable, calculated as the sum of each possible value multiplied by its probability. It is a fundamental concept in probability, statistics, and decision theory.
Expected value helps evaluate gambles, investments, insurance policies, and any scenario involving uncertainty by summarizing outcomes into a single number.
Common use cases:
- Investment decision analysis
- Insurance premium calculation
- Game theory and gambling evaluation
Frequently Asked Questions
Dr. David Park
Applied Mathematician, PhD Mathematics
David holds a PhD in Applied Mathematics from MIT. He has published research on numerical methods and computational algorithms used in engineering and scientific calculators.
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