Expected value

Expected value is a concept used in situations in which it is desirable to establish the value of different options with uncertain outcomes. The expected value of an action is the sum of the value of each potential outcome multiplied by the probability of that outcome occurring. Expected value is useful for selecting between projects.

Imagine you're choosing between two medical interventions. The first intervention is a drug that succeeds in 60% of cases, and that gives an extra year of healthy life when it succeeds, and has no impact if it fails.

In the case of this drug, there are only two outcomes: success and failure. So the expected value is:...

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