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May Tran Expected Value and Variance Statistics 0827 Section 002 Spring 2014 Sam Adhikari

This document discusses expected value and variance. It defines expected value as the weighted average of all possible outcomes, where the weights are the probabilities of each outcome occurring. Variance measures the spread or dispersion of possible outcomes. The document uses the example of rolling a die to demonstrate how to calculate expected value mathematically. It also explains how expected value and variance can be used to analyze games of chance and investments.

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38 views5 pages

May Tran Expected Value and Variance Statistics 0827 Section 002 Spring 2014 Sam Adhikari

This document discusses expected value and variance. It defines expected value as the weighted average of all possible outcomes, where the weights are the probabilities of each outcome occurring. Variance measures the spread or dispersion of possible outcomes. The document uses the example of rolling a die to demonstrate how to calculate expected value mathematically. It also explains how expected value and variance can be used to analyze games of chance and investments.

Uploaded by

tuf18259
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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May Tran
Expected Value and Variance
Statistics 0827
Section 002
Spring 2014
Sam Adhikari










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ABSTRACT
For my project, I will explain expected value and variance each individually as well as the
relationship between them. For the sake of this projects simplicity, I will focus on expected
variance although I will still explain variance and connect it to expected value. I will define the
terms, and then I will also mathematically demonstrate expected value with diagrams that
show its notations. Through a number of different examples, I will show the various uses of
expected value and the various contexts for variance. Based on one simple example, I will
present various applications and contexts for expected value and variance.

INTRODUCTION
Consider rolling a die once. Let x be the number that turns up on the die. There is a one-
sixth chance for every possible value of x.

METHODOLOGY

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We multiply every value of x with its probability of occurring (in this case one-sixth) and
add all the products up. The expected value is found to be seven-halves, or three and a half.
This means that if you were to roll the die over and over again, eventually the outcomes will
average out to be three and a half.
We can see this in the chart above. Since the probabilities are all the same for each
value of x, the median is as obvious as being in the middle between 3 and 4. In cases where the
probabilities vary, the median or the balance point can more easily be seen in a histogram.

If you consider probability to be mass and take the bars of the histogram to be metal,
then expected value can be understood as the histograms physical center of gravity, literally.

DISCUSSION
Expected value, by predicting the outcome of an experiment, lets you determine the
value of something, for example a game, in order to make a judgment. For example, you can
use expected value to choose between playing roulette at the casino or the lottery. If you
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played a game, and X is what you won, then E(X) is what you would win on average if you
continue to play the game many times over. Expected value allows you to figure out the end
results without having to actually do something many times. So, you can know if you would
have a better result with the roulette or the lottery without having to play both repeatedly.
Since expected value lets you determine value, variance lets you measure the associated
risk. For example, you can measure the risk involved in a game (like roulette or lottery) or even
in an investment plan.

CONCLUSION
When a large collection of numbers is assembled, such as in a census, we are usually not
interested in the individual numbers, but instead in certain descriptive quantities like the
average or the median. Generally, the same is true for the probability distribution of a
numerically-valued random variable. Two such descriptive quantities are expected value and
the variance.
The expected value of a random variable is a weighted average of the possible values
that X can take, each being weighted according to the probability of that event occurring. The
expected value measures the distributions center, in other words, its mean value. The
interchangeable terms for expected value are mean, average, and expectation. Expected value
can be understood as the long-run-average value of the random variable in repeated
independent trials. The variance measures the horizontal spread or the dispersion of the
random variable.

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REFERENCES
http://blogs.ubc.ca/math105/continuous-random-variables/expected-value-variance-
standard-deviation/
http://www.mathsrevision.net/advanced-level-maths-revision/statistics/expectation-
and-variance
http://www.dartmouth.edu/~chance/teaching_aids/books_articles/probability_book/C
hapter6.pdf
http://www.stat.purdue.edu/~djbatema/Lecture16.pdf

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