1. What is Expected Value Proposition?

The Expected Value (EV) is a fundamental concept in decision theory that calculates the average outcome when an action is repeated multiple times. In the Malaysian context, it helps evaluate business decisions, investments, and risk assessments.

2. How Does the Calculator Work?

The calculator uses the Expected Value formula:

Where:

• \( Probability \) — Likelihood of the outcome occurring (0 to 1)
• \( Outcome \) — Financial result if the event occurs (MYR)
• \( Cost \) — Initial investment or expense (MYR)

Explanation: The equation balances potential gains against their likelihood and subtracts the initial cost to determine the proposition's value.

3. Importance of EV Calculation

Details: EV calculation is crucial for making informed business decisions, evaluating investment opportunities, and comparing different strategic options in the Malaysian market.

4. Using the Calculator

Tips: Enter probability as a decimal (0 to 1), outcome and cost in MYR. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from ROI?
A: EV considers probability of outcomes, while ROI simply compares gains to costs without accounting for uncertainty.

Q2: What is a good EV value?
A: Positive EV indicates a potentially favorable proposition, while negative EV suggests it may not be worthwhile.

Q3: Can EV be used for personal finance decisions?
A: Yes, EV can help evaluate insurance options, investments, and other financial decisions in Malaysia.

Q4: What are limitations of EV?
A: EV doesn't account for risk tolerance or extreme outcomes (very high gains or losses).

Q5: How often should EV be recalculated?
A: Recalculate when input factors change significantly - probability estimates, outcome values, or costs.