When making decisions, take into account Expected Value.

Expected Value is the sum when you add (each possible outcome’s result x it’s likelihood).

Examples

• Flip a coin, I give you $10 if it’s heads, I give you nothing if it’s tails. Expected Value: $2.50.
• Flip a coin, I give you $10 if it’s heads, you give me $10 if it’s tails. Expected Value: $0
• Roll a die, if it’s a 6 I give you $60. If it’s anything else you give me $10. Expected Value: (1/6)$60+(5/6)(-$10) = $1.67

Related Notes

Base Rates

Gambler's Fallacy

Bayes Theorem