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    How To Calculate The Expected Value: P X P P P

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    Angela Brown
    The expected value is the average outcome of a random variable over many trials. It is calculated by multiplying each possible outcome by its probability of occurring and summing these values. For example, in a carnival game with a 1/6 probability of winning $8 and a 5/6 probability of losing $2, the expected value is -1/3, meaning on average you would lose 33 cents per play. The expected value can be used to determine if games of chance are fair by calculating if, over many plays, you would expect to lose or break even money on average.

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    How To Calculate The Expected Value: P X P P P

    Uploaded by

    Angela Brown
    180 views2 pages
    The expected value is the average outcome of a random variable over many trials. It is calculated by multiplying each possible outcome by its probability of occurring and summing these values. For example, in a carnival game with a 1/6 probability of winning $8 and a 5/6 probability of losing $2, the expected value is -1/3, meaning on average you would lose 33 cents per play. The expected value can be used to determine if games of chance are fair by calculating if, over many plays, you would expect to lose or break even money on average.

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    The expected value is the average outcome of a random variable over many trials. It is calculated by multiplying each possible outcome by its probability of occurring and summing these values. For example, in a carnival game with a 1/6 probability of winning $8 and a 5/6 probability of losing $2, the expected value is -1/3, meaning on average you would lose 33 cents per play. The expected value can be used to determine if games of chance are fair by calculating if, over many plays, you would expect to lose or break even money on average.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    180 views2 pages

    How To Calculate The Expected Value: P X P P P

    Uploaded by

    Angela Brown
    The expected value is the average outcome of a random variable over many trials. It is calculated by multiplying each possible outcome by its probability of occurring and summing these values. For example, in a carnival game with a 1/6 probability of winning $8 and a 5/6 probability of losing $2, the expected value is -1/3, meaning on average you would lose 33 cents per play. The expected value can be used to determine if games of chance are fair by calculating if, over many plays, you would expect to lose or break even money on average.

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    How to Calculate the Expected Value

    C.K.Taylor
    Updated December 23, 2018
    The expected value can really be thought of as the mean of a random variable. This means that if
    you ran a probability experiment over and over, keeping track of the results, the expected value
    is the average of all the values obtained. The expected value is what you should anticipate
    happening in the long run of many trials of a game of chance.
    The carnival game mentioned above is an example of a discrete random variable. The variable is
    not continuous and each outcome comes to us in a number that can be separated out from the
    others. To find the expected value of a game that has outcomes x1, x2, . . ., xn with probabilities
    p1, p2, . . . , pn, calculate:
    x1p1 + x2p2 + . . . + xnpn.
    For the game above, you have a 5/6 probability of winning nothing. The value of this outcome is
    -2 since you spent $2 to play the game. A six has a 1/6 probability of showing up, and this value
    has an outcome of 8. Why 8 and not 10? Again we need to account for the $2 we paid to play,
    and 10 - 2 = 8.
    Now plug these values and probabilities into the expected value formula and end up with: -2
    (5/6) + 8 (1/6) = -1/3. This means that over the long run, you should expect to lose on average
    about 33 cents each time you play this game. Yes, you will win sometimes. But you will lose
    more often.
    Suppose that the carnival game has been modified slightly. For the same entry fee of $2, if the
    number showing is a six then you win $12, otherwise, you win nothing. The expected value of
    this game is -2 (5/6) + 10 (1/6) = 0. In the long run, you won't lose any money, but you won't win
    any. Don't expect to see a game with these numbers at your local carnival. If in the long run, you
    won't lose any money, then the carnival won't make any.
    In the same way as before we can calculate the expected value of games of chance such as
    roulette. In the U.S. a roulette wheel has 38 numbered slots from 1 to 36, 0 and 00. Half of the 1-
    36 are red, half are black. Both 0 and 00 are green. A ball randomly lands in one of the slots, and
    bets are placed on where the ball will land.
    One of the simplest bets is to wager on red. Here if you bet $1 and the ball lands on a red number
    in the wheel, then you will win $2. If the ball lands on a black or green space in the wheel, then
    you win nothing. What is the expected value on a bet such as this? Since there are 18 red spaces
    there is an 18/38 probability of winning, with a net gain of $1. There is a 20/38 probability of
    losing your initial bet of $1. The expected value of this bet in roulette is 1 (18/38) + (-1) (20/38)
    = -2/38, which is about 5.3 cents. Here the house has a slight edge (as with all casino games).
    As another example, consider a lottery. Although millions can be won for the price of a $1 ticket,
    the expected value of a lottery game shows how unfairly it is constructed. Suppose for $1 you
    choose six numbers from 1 to 48. The probability of choosing all six numbers correctly is
    1/12,271,512. If you win $1 million for getting all six correct, what is the expected value of this
    lottery? The possible values are -$1 for losing and $999,999 for winning (again we have to
    account for the cost to play and subtract this from the winnings). This gives us an expected value
    of:
    (-1)(12,271,511/12,271,512) + (999,999)(1/12,271,512) = -.918
    If you were to play the lottery over and over, in the long run, you lose about 92 cents — almost
    all of your ticket price — each time you play.
    All of the above examples look at a discrete random variable. However, it is possible to define
    the expected value for a continuous random variable as well. All that we must do in this case is
    to replace the summation in our formula with an integral.
    It is important to remember that the expected value is the average after many trials of a random
    process. In the short term, the average of a random variable can vary significantly from the
    expected value.

    Work Cited: What Is the Expected Value in Probability? (thoughtco.com)

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