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Expected Value
(redirected from Expected values)

   Also found in: Dictionary/thesaurus, Encyclopedia, Wikipedia 0.01 sec.
Expected value
The weighted average of a probability distribution. Also known as the mean value.

Expected Return
The return on an investment as estimated by an asset pricing model. It is calculated by taking the average of the probability distribution of all possible returns. For example, a model might state that an investment has a 10% chance of a 100% return and a 90% chance of a 50% return. The expected return is calculated as:

Expected Return = 0.1(1) + 0.9(0.5) = 0.55 = 55%.

It is important to note that there is no guarantee that the expected rate of return and the actual return will be the same. See also: Abnormal return.


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For example, if it takes 25,827,165 drawings before the expected values of all 54 lottery numbers are within a fraction of 1% of each other, it will take 248,338 years of lottery drawings to reach that point
If the probabilities of the various outcomes are known, and are likely to be repeated over and over again, then we can use expected values to inform our decision.
Instead of taking expected values of various regulations and choosing the policy with the highest expected value (implicitly assuming that the policy will continue indefinitely), policymakers should conduct cost-benefit analysis in a dynamic context where learning is possible.
 
 
 
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