Expected value, Microeconomics

Expected Value

- The weighted average of payoffs or values resulting from all the possible outcomes.

  • The probabilities of every outcome are used as weights
  • Expected value measures central tendency; payoff or value expected on an average

- An Example

  • Investment in drilling exploration:
  • The outcomes that are possible is two

-  Success -- stock price increase from $30 to $40/share

-  Failure -- stock price decrease from $30 to $20/share 

Posted Date: 10/10/2012 8:17:20 AM | Location : United States

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