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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
Sarah Chen
Financial Analyst, CFA
Sarah is a Chartered Financial Analyst with over 8 years of experience in investment management and financial modeling. She specializes in retirement planning and compound interest calculations.
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