The expected value (EV) is an anticipated value for an investment at some point in the future.
Expected value is an ideal way to make decisions because it allows you to quantify and incorporate risk into your decision making, as well as balance potentially good and bad outcomes in the same equation.
Formula to calculate expected value.
P(x) – the probability of the event
n – the number of the repetitions of the event
Example:
The probability of a certain success is 0.2 and the event have to be done five times. Calculate the expected value.
Therefore, the expected value is 1.
