Expected

Expected is a term often used in statistics and probability theory to denote the average outcome of a random event. The expected value is calculated by multiplying each of the possible outcomes by the likelihood each outcome will occur, and then summing all of those values.

Definition

In probability theory, the expected value of a random variable is the sum of the probability of each possible outcome of the experiment multiplied by its payoff (value). Thus, it represents the average amount one "expects" to win per bet if bets with identical odds are repeated many times. A game or situation in which the expected value for the player is zero (no net gain nor loss) is called a fair game.

Calculation

The expected value is a key aspect of how one characterizes a probability distribution; it is one type of location parameter. By contrast, the variance is a measure of dispersion of the possible values of the random variable around the expected value. The variance itself is defined in terms of two expectations: it is the expected value of the squared deviation of the variable's value from the variable's expected value.

Applications

The expected value plays important roles in a variety of contexts. In regression analysis, one desires a formula in terms of observed data that will give a "good" estimate of the parameter giving the effect of some explanatory variable upon a dependent variable. The formula will give different estimates using different samples of data, so the estimate it gives is itself a random variable. A formula is generally considered good in this context if it is an unbiased estimator—that is, if the expected value of the estimate (the average value it would give over an arbitrarily large number of separate samples) can be shown to equal the true value of the desired parameter.

See also

• Probability theory
• Statistics
• Variance
• Regression analysis

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