Expected value Flashcard

Expected value is the average outcome of a random event, calculated by multiplying each possible outcome by its probability and summing the results.

Expected value (EV) = (Probability of Outcome 1 x Value of Outcome 1) + (Probability of Outcome 2 x Value of Outcome 2) + ...

A positive expected value indicates that, on average, a player can expect to win money over time.

A negative expected value indicates that, on average, a player can expect to lose money over time.

EV = (0.2 x $10) = $2.00.

EV = (0.5 x $3) - $1 = $0.50.

The expected value of a fair game is $0, meaning neither the player nor the host has an advantage.

More outcomes can complicate the calculation of expected value, as each outcome must be weighted by its probability.

EV = (0.1 x $5) + (0.9 x -$1) = $0.50 - $0.90 = -$0.40.

A fair game is one where the expected value is zero, meaning players neither gain nor lose money on average.