Because the probabilities will ‘work out’ to be correct in the long run, you can use them to calculate the average outcome for the scenario.It takes an infinite number of flips to guarantee an equal number of heads and tails.The expected value in this example comes from running the scenario an infinite number of times.Positive EV #TRIALĪlthough the 50 cents answer seems obvious here, it feels counterintuitive because you don’t ever actually get paid 50 cents: you are either given $1 or $0: The average outcome here is also fairly straightforward: you would expect, on average, to win 50 cents.īecause the probability indicates you would profit from this scenario in the long run, taking that risk would be a ‘ positive EV’ (positive expected value) decision. It’s clear that there is a 50% chance of winning a dollar and a 50% chance of winning nothing.
Let’s say you will receive $1 if it comes up heads, and nothing if it comes up tails.
