Investment & Finance
Expected Value Analysis
預期值分析 · Source: 統計學 / 賭博理論 / 投資分析
Decisions with quantifiable outcomes — investments, business decisions, choices with probability and payoff structures
Core Concept
Expected value = Σ(probability of each scenario × outcome of each scenario). If EV is positive, this decision is favorable over repeated execution. The key question: how honest are your probability and outcome estimates?
✓ When to use this
For quantifiable, repeatable choices: investment allocation, insurance decisions, accepting a wager, product discount strategies. Most effective when you can reasonably estimate probabilities and payoffs.
✗ When not to use this
One-shot life decisions (marriage, having kids) do not fit pure expected value — emotion and meaning resist quantification. Extreme tail risks (bankruptcy, health collapse) need Margin of Safety on top.
Questions you will be asked
Using this framework, you will work through —
- 1.What decision are you considering?
- 2.List the main possible scenarios for this decision (at least three)
- 3.For each scenario, estimate the probability of occurring (should sum to ~100%)
- …and 3 more
Related Frameworks
Investment & Finance
Margin of Safety Thinking
Any decision resting on critical assumptions — investments, ventures, major commitments — ensuring you survive when assumptions prove wrong
Investment & Finance
Opportunity Cost Framework
Resource allocation decisions — how to deploy time, money, attention; especially when you're treating "do nothing" as a free option
Psychology & Behavior
Base Rate Forecasting
Decisions requiring outcome forecasts — from startup success rates to investment returns, start by asking "how does this type of thing typically go"