Statistical Reasoning - Expected Value

These flashcards cover key vocabulary related to statistical reasoning and expected value concepts, aiding in understanding the mathematical principles behind gambling and insurance.

Expected Value

The average (expected) value of an outcome variable, calculated by multiplying each outcome by its probability and adding all the products.

Weighted Average

An average where each quantity is multiplied by a weight before summing, commonly used to calculate expected values.

Probability

The likelihood that a particular outcome will occur, often expressed as a fraction, decimal, or percentage.

House Edge

The mathematical advantage that a casino has over players, ensuring a positive expected return over the long term.

Law of Large Numbers

A theorem stating that as a sample size grows, its mean gets closer to the average of the whole population.

Long-run Average Outcome

The expected value representing the average outcome of an experiment if it is repeated many times.

Premiums

Payments made to an insurance company to maintain coverage, set based on the company's predictions of risk and payouts.

Betting System

A strategy where the amount wagered depends on previous outcomes, often used by gamblers in hopes of overcoming odds.

Casinos

Establishments that offer games of chance, using expected values to ensure profits over time.

Insurance Companies

Businesses that provide financial protection against specific risks, relying on expected outcomes and probabilities to set policies.