📄 12 — Expected Value
Definition
The weighted average of all possible outcomes, based on their probabilities.
When to Use
• Investment decisions • Risk analysis • Choosing between uncertain options • Evaluating long‑term strategies
How It Improves Reasoning
It reveals the best choice on average, not just the best possible outcome.
Steps
- List possible outcomes.
- Assign probabilities.
- Multiply outcome × probability.
- Sum the results.
Example
Choosing between two job offers with different salaries and bonus probabilities.
Prompts
• “Calculate expected value for these options.” • “Compare choices using expected value.”