Statistics How To

Expected Value in statistics: Easy Steps to Calculate it

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Before you begin, you may want to read this overview: What is an Expected Value?

If you make a chart, the math behind finding an expected value becomes clearer. This article explains how to figure out the expected value for a single item (like purchasing a single raffle ticket) and what to do if you have multiple items. If you have a discrete random variable, read this article instead: Expected value for a discrete random variable.

Calculate an Expected value in statistics

Sample question: You buy one $10 raffle ticket for a new car valued at $15,000. Two thousand tickets are sold. What is the expected value of your gain?

Step 1: Make a probability chart (see: How to construct a probability distribution). Put Gain(X) and Probability P(X) heading the rows and Win/Lose heading the columns.
expected value

Step 2: Figure out how much you could gain and lose. In our example, if we won, we’d be up $15,000 (less the $10 cost of the raffle ticket). If you lose, you’d be down $10.  Fill in the data (I’m using Excel here, so the negative amounts are showing in red).

expected value 2

Step 3: In the bottom row, put your odds of winning or losing. Seeing as 2,000 tickets were sold, you have a 1/2000 chance of winning. And you also have a 1,999/2,000 probability chance of losing.

expected value 3

Step 4: Multiply the gains (X) in the top won by the Probabilities (P) in the bottom row.

$14,990 * 1/2000 = 7.495,
(-$10)*(1,999/2,000)= -$9.995

That’s it!

Note on multiple items: for example, what if you purchase a $10 ticket, 200 tickets are sold, and as well as a car, you have runner up prizes of a CD player and luggage set?

Perform the steps exactly as above. Make a probability chart except you’ll have more items:

expected value 4

Then multiply/add the probababilities as in step 4: 14,990*(1/200) + 100 * (1/200) + 200 * (1/200) +  -$10 * (197/200).

You’ll note now that because you have 3 prizes, you have 3 chances of winning, so your chance of losing decreases to 197/200.

Note on the formula: The actual formula for expected gain in probability and statistics is E(X)=∑X*P(X) (this is also one of the AP Statistics formulas).  What this is saying (in English) is “The expected value is the sum of all the gains multiplied by their individual probabilities.”

Use our online expected value calculator to calculate simple probabilities!

Next: More statistics help.

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8 thoughts on “Expected Value in statistics: Easy Steps to Calculate it

  1. Lisa Barcomb

    The way that this seems to be is that you need to know how to set up your tables with the information given to you. And this is where I am seeing were I am having problems, what goes where and why? I am having problems with that formula E(X)=Ex*P(X)I really don’t understand it. I guess if I go back to where this started and re-read it the section maybe I will get the jest of it. I see how they put the tables together thats not hard its just trying to figure out where the information goes.

  2. Stephanie

    Lisa,
    If you follow the steps in this how-to, you can skip using the formula. But you are right–it’s a matter of figuring out where to put the information, which is sometimes a challenge. I’m sure with practice you’ll pick it up,
    Stephanie

  3. Mary Johnson

    I agree with Lisa. I am having a hard time understanding where the information goes. This explanation does help a little, I guess I just need to do it more often.

  4. Donna Allen

    I too agree, sometimes the biggest challenge is to know where to plug in the numbers in the equation. The more problems I practice, the more it seems to click, though. Your explanations on here are clear cut and easy to follow.

  5. Catherine Flanagan

    This blog really helped me figure out probability charts. I agree with the other post that it was hard to figure out at first, but after practicing over and over it finally came to me. I also like that it shows the possibility of winning multiple prizes. I don’t recall the book having an example like this one.

  6. angie widdows

    the examples are so helpful when you make tables. Without making the tables, it gets confusing. The more examples the better.