Author Topic: Expected Value  (Read 2695 times)

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Offline necro

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Expected Value
« on: December 13, 2005, 05:27:00 pm »
Any one use this little goody yet?  sum of all probailities value*chance presents the expected value...great for betting and investing.  So, say some one says "will you play me my dice roll to your coin flip 2 fold (a value of 1 or 2 depending on side tossed) as payouts?" well, is this a good idea?

0.)understanding the bet is important...here it is a value based on the roll will dictate the pay outs, I get a 6 then I get 6 dollars, you get a heads you get 4 dollars, you get tails then 2 dollar ect.

1.) well, just take your values and multiply them by your prob
2(1*.5)+2(2*.5)=3

2.) and your chalanger
(1*.16)+(2*.16)+(3*.16)+(4*.16)+(5*.16)+(6*.16)=3.5 [I used a calc instead of .16 which is rounded]

Bad bet indeed...half a dollar lost on every wager in the long haul
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Note: this could also be applied to bonds and stocks (chance of inflation/rate of gain) (chance of inflation/risk/rate of gain) ect.
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katmaster

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Expected Value
« Reply #1 on: December 13, 2005, 07:29:00 pm »
Ohhhhh, evil >:)