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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Expected value
I would really appreciate if you can explain these: Expected value will ignore an variability in the range of possible outcomes and be concerned only with the expected value of outcomes?
2)Expected value will take into account the likelihood of the different outcomes occuring?(I thought a limitation to using an expected value is the actual outcomes may be different from the expected)
I assume are happy with the actual calculation of the expected value. It is calculated by taking into account the likelihood of the different outcomes occurring (the probabilities) – multiplying the different outcomes by the probabilities. But the expected value is likely to be different from any of the actual possible outcomes.
With regard to variability, outcomes of 150 and 50, have bigger variability that outcomes of 110 and 90. But if the probabilities were 0.5 in each case, then the expected value would be the same for both.
how does variability outcomes of 150 and 50 bigger than that of 110 and 90? Can you explain in a layman’s term. I am sorry if I sound so stupid.
Variability is the possible spread of the actual outcomes. i.e. how much higher or lower they might be.