Expected value analysis is a powerful way to distill a massive array of possibilities into a few numbers, which helps clarify the most profitable course of action. This short course goes from the basics to important insights for business financial management.

It starts with a simple calculation based on potential outcomes and their probability. The first lesson walks you through the calculation and points out limits to it. We then look at influence diagrams, which are a good way to get a high-level view of the key factors in an expected value decision.

Next, we look at decision trees. Decision trees show the sequence of decisions and uncertainties. Every path through the tree is a scenario for which we can calculate an EV. The tree shows a range of outcomes, their probabilities, and the value of those outcomes. This helps us assess and clearly communicate both the EV and risk. We can better help evaluate the odds and magnitude of gaining – or losing – money.

Course Key Concept: Expected value, Influence diagrams, Decision trees, Probabilistic modeling, Net Present Value, Probability, Real options, Risk.

Note: This course is also available in Text-Based format:
Decision Optimization by Maximizing Expected Value (Text Based Course)