Data and Probability:
Understanding Expected Value
Generated by TudloAI
What is Probability?
• Probability is the
measure of the
likelihood that an event
will occur.
• It is a value between 0
and 1, inclusive.
What is Probability?
• A probability of 0 means
the event is impossible.
• A probability of 1 means
the event is certain.
What is Probability?
• Example: The
probability of flipping a
head on a fair coin is
0.5.
Introducing Expected Value
• Expected Value (E[X]) is
the long-run average
value of a random
variable.
Introducing Expected Value
• It is calculated by
summing the product of
each possible value of
the random variable
and its corresponding
probability.
Introducing Expected Value
• Formula:
𝑬[𝑿] = 𝚺 [𝑿 ∗ 𝑷(𝑿)]
Introducing Expected Value
• Formula:
𝑬[𝑿] = 𝚺 [𝑿 ∗ 𝑷(𝑿)]
Where:
E(X) – expected value or mean (𝜇)
X – random variable
P(X) – probability of random
variable
Example 1: Flipping a Fair Coin
• Let X be the number of
heads in a single flip of a
fair coin.
• Possible values of X:
0 (tail), 1 (head)
Example 1: Flipping a Fair Coin
• Possible values of X:
0 (tail), 1 (head)
• Probability of X = 0 (P(Tail))
= 0.05
Example 1: Flipping a Fair Coin
• Possible values of X:
0 (tail), 1 (head)
• Probability of X = 1 (P(Head))
= 0.05
Example 1: Flipping a Fair Coin
• Possible values of X:
0 (tail), 1 (head)
• Probability of X = 0 (P(Tail))
= 0.5
• Probability of X = 1 (P(Head))
= 0.5
Example 1: Flipping a Fair Coin
• Probability of X=0 (P(Tails)) = 0.5
• Probability of X=1 (P(Heads)) = 0.5
E[X] = (0 * 0.5) + (1 * 0.5)
= 0 + 0.5
= 0.5
Example 2: Rolling a Fair Die
• Let Y be the outcome of
rolling a fair six-sided die.
• Possible values of Y:
1, 2, 3, 4, 5, 6
Example 2: Rolling a Fair Die
• Possible values of Y:
1, 2, 3, 4, 5, 6
• Each outcome has a
probability of 1/6.
Example 2: Rolling a Fair Die
• Each outcome has a probability of 1/6.
E[Y] = (1 * 1/6) + (2 * 1/6) + (3 * 1/6) +
(4 * 1/6) + (5 * 1/6) + (6 * 1/6)
= (1+2+3+4+5+6) / 6
= 21 / 6
= 3.5
Example 3: A Simple Game of Chance
• You play a game where
you win P100 with
probability 0.2, and lose
P50 with probability 0.8.
• Let W be your winnings.
Example 3: A Simple Game of Chance
• You play a game where you win P100
with probability 0.2, and lose P50 with
probability 0.8.
• Let W be your winnings.
• Possible values of W: 100, - 50.
• P(W = 100) = 0.2
• P(W = - 50) = 0.8
• E[W] = (100 * 0.2) + (- 50 * 0.8)
• E[W] = 20 + (- 40)
• E[W] = - 20
Example 4: A Raffle Draw
• A school holds a raffle
with 100 tickets sold at
P10 each.
• There is one grand prize
of P500.
• Let X be your net gain
from buying one ticket.
Example 4: A Raffle Draw
• A school holds a raffle with 100 tickets sold at P10
each.
• There is one grand prize of P500.
• Let X be your net gain from buying one ticket.
• Cost of ticket = P10.
• Prize = P500.
• Possible values of X:
• If you win: 500 - 10 = 490
• If you lose: 0 - 10 = - 10
• Probability of winning = 1/100 = 0.01
• Probability of losing = 99/100 = 0.99
• E[X] = (490 * 0.01) + (- 10 * 0.99)
• E[X] = 4.90 + (- 9.90)
• E[X] = - 5.00
Example 5: Investment Scenario
• An investor is considering two
options:
• Option A: 60% chance of gaining
P20,000; 40% chance of losing
P10,000.
• Option B: 80% chance of gaining
P15,000; 20% chance of losing
P5,000.
• Calculate the expected value for each
option.
Example 5: Investment Scenario
• An investor is considering two options:
• Option A: 60% chance of gaining P20,000; 40%
chance of losing P10,000.
• Option B: 80% chance of gaining P15,000; 20%
chance of losing P5,000.
• Calculate the expected value for each option.
• Option A: E[A] = (20,000 * 0.60) + (- 10,000 * 0.40)
• E[A] = 12,000 + (-4,000)
• E[A] = 8,000
• Option B: E[B] = (15,000 * 0.80) + (- 5,000 * 0.20)
• E[B] = 12,000 + (- 1,000)
• E[B] = 11,000
• Conclusion: Option B has a higher expected value.
Why is Expected Value Important?
• Helps in decision-making under
uncertainty.
• Used in finance, insurance,
gambling, and risk management.
• Provides a long-term
perspective on outcomes.
• Enables us to assess the fairness
of games or opportunities.
Your Turn to Calculate!
• Imagine a spinner with 4
equal sections labeled 1, 2,
3, and 4.
• You spin the spinner once.
Let X be the number you
land on.
• Calculate the expected value
of X.
Solution: Spinner Problem
• Let X be the number landed on the spinner.
• Possible values of X: 1, 2, 3, 4.
• Since the sections are equal, the probability of
landing on each is 1/4 or 0.25.
• P(X=1) = 0.25
• P(X=2) = 0.25
• P(X=3) = 0.25
• P(X=4) = 0.25
• E[X] = (1 * 0.25) + (2 * 0.25) + (3 * 0.25) + (4 *
0.25)
• E[X] = 0.25 * (1 + 2 + 3 + 4)
• E[X] = 0.25 * 10
• E[X] = 2.5
• Answer: The expected value is 2.5.
Summary and Next Steps
• We learned that Expected Value is the average
outcome of a random variable over many trials.
• We practiced calculating E[X] using the formula: E[X]
= Σ [X * P(X)].
• This skill is vital for informed decision-making in
uncertain situations.
• Next, we will explore how expected value relates to
sampling and statistical investigations.