From the course: Data Literacy: Exploring and Describing Data

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Expected values

Expected values

From the course: Data Literacy: Exploring and Describing Data

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Expected values

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- [Instructor] Sometimes when you have to make an important decision, it's helpful to write a list of pros and cons in two separate columns. So you can see what the trade offs and the benefits are that are involved. Now earlier in this course, I demonstrated a spreadsheet that can help you calculate the value of different choices you might be making. Right now however, I'm want to show you a slightly more elaborate approach that has the stamp of approval of economists everywhere. The big difference here is that this method explicitly includes the probabilities of different outcomes. What we're going to be focusing on is expected values, and here are the steps involved. First list, all of the possible outcomes of a decision. You want to try to be comprehensive. Second, estimate the value of each outcome. If you're going to put it in dollars, that's great. If you're going to put it in some sort of other utility measure or new customers or happiness involved, that's great, but you need…

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