Analyze decisions and strategies using probability concepts in more complex settings.
Find the expected value by multiplying each outcome by its probability and adding
Problem
What is the expected value of this decision: win \(\$10\) with probability \(0.2\) and lose \(\$2\) with probability \(0.8\)?
Big Picture
What this problem is really about
Expected value is a probability-weighted balance of every possible payoff. Keep gains positive and losses negative, multiply each signed outcome by the probability attached to it, and add the contributions. The result describes an average over many comparable trials; it is not a payoff that must occur on any single trial.
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