Explanation

Expected value (E) = weighted average of all outcomes:

E(X) = Σ (value × probability)

Example:

• $10 with 50% chance, $0 with 50% chance
  E(X) = 10×0.5 + 0×0.5 = $5

Used in:

• Games of chance

• Business

• Risk assessment

Quiz

1. What does expected value represent?

2. Formula for expected value?

3. Calculate E if $5 with 40%, $0 with 60%.

4. Can expected value be negative?

5. Does it guarantee the outcome?

Answer Key

1. Average outcome over time

2. E(X) = Σ(value × probability)

3. 5×0.4 + 0×0.6 = 2

4. Yes

5. No