Sometimes statistics can help when it’s hard to decide what to do.
You’re at a local art fair, and they’re raffling off a car worth $10,000. Five hundred tickets are being sold, each for $10. Does it make financial sense to buy a ticket? (For the moment, let’s set aside other questions about raffles and just focus on the benefit for you, the potential ticket-buyer.)
You can use a statistical concept called “expected value” to help you decide. Expected value is calculated by multiplying the probability of each potential outcome by its value, then adding these results together to get the average result of an action.
Let’s figure this out—a car is on the line. First, we multiply the probability of each potential outcome by its value.