Expected value- the weighted average of payoffs or values, Ask an Expert

Economics

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

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M9511052

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