Before You Bet, Understand Expected Value!

With the upcoming super-bowl and all the betting surrounding it, you should understand expected value before you make any bets.

Informally, the expected value can be interpreted as the long-run average of the results of many independent repetitions of an experiment. (from wikipedia)

By using expected value as a guide over your life, you should come out ahead.

How to calculate expected value:

Say you have two options, one is to bet in a superbowl grid and the other is to bet on a 0-9 pool. To calculate the expected value of each do the following:

Expected Value = – (chance of losing * amount lost) + (chance of winning * amount won)

Ex. -(.99 * $100) + (.01 * $10,000) = $1 (Superbowl Grid)

(The above is simplified as with the grid you have a .01 chance of winning each quarter and for the half)

Ex. -(.9 * $100) + (.1 * $1,000) = $10 (0-9 pool)

Which would be the better choice?

In most decisions in life you would prefer the expected value be more than the amount at risk, this rarely happens with betting and is the reason the house always wins.