3/15/2020 Expected Value

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Expected Value
In a probability distribution , the weighted average of possible values of a random variable,
with weights given by their respective theoretical probabilities, is known as the expected value
, usually represented by E (x) .

The expected value informs about what to expect in an experiment "in the long run", after
many trials. In most of the cases, there could be no such value in the sample space.

The weighted average formula for expected value is given by multiplying each possible value
for the random variable by the probability that the random variable takes that value, and
summing all these products. It can be written as

E (x) = ∑ xi P (xi ) ,

where xi covers all possible values for the random variable, and P (xi ) is the respective
theoretical probability.

E (x) is also called as mean of the probability distribution because it tells what to expect in the
" long run "- that is, after many trials.

Example:

When you roll a die, you will be paid $1 for odd number and $2 for even number. Find the
expected value of money you get for one roll of the die.

The sample space of the experiment is {1, 2, 3, 4, 5, 6} .

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3/15/2020 Expected Value

The table illustrates the probability distribution for a single roll of a die and the amount that
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will be paid for each outcome.

Roll ( x ) 1 2 3 4 5 6

Probability
1 1 1 1 1 1

6 6 6 6 6 6

Amount
1 2 1 2 1 2
($)

Use the weighted average formula.

1 1 1 1 1 1
E (x) = 1 ( ) + 2( ) + 1( ) + 2( ) + 1( ) + 2( )
6 6 6 6 6 6

1 2 1 2 1 2
                = + + + + +
6 6 6 6 6 6

9
                =
6

                = 1.5

So, the expected value is $1.50 . In other words, on average, you get $1.50 per roll.

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