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” Expected values ignores the risk associated with the decision.”
-Could you explain how this statement is correct?
Does EV recognises the risk in the decision based on the probabilities of different possible outcomes?I explain this in my lectures when I state that using expected values is risk neutral.
A profit of either 90 or 110 (which 0.5 probabilities) will have exactly the same expected value as a profit of either 50 or 150 (with 0.5 probabilities) but the second case is much more risky because the spread of the possible results is much more.
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