The expected value of an option:

Question

Quizplus · Accepted Answer

The expected value of an option is calculated as the sum of the utility of each likely outcome multiplied by the probability of that outcome occurring. This means that the expected value takes into account both the utility of the outcome and the likelihood of that outcome occurring. As such, choice A is incorrect because the expected value is based on the probability of reaching the desired outcome. Choice B is also incorrect because the expected value is a calculation based on the consequences of the action. Choice D is incorrect because the expected value can be positive or negative regardless of the likelihood of success with the action.

The Expected Value of an Option