Overview

expected monetary value


Show Summary Details

Quick Reference

In decision making, the sum of the products of the outcomes in monetary terms and the probabilities of these outcomes arising. In decision trees subjective probability estimates are assigned to each possible outcome. In the EMV, the outcomes are expressed in terms of money. Compare expected value.

EXAMPLE

A manager calculates that a project has three possible monetary outcomes, each of which is assigned a different subjective probability. The EMV can then be calculated as follows:

The figure of 3900 can then be compared with the EMVs of alternative projects as a guide to decision making.

possible outcomes (£)

subjective probability (p)

product (£ × p)

3000

0.5

1500

4000

0.3

1200

6000

0.2

1200

1.0

EMV = 3900

Subjects: Accounting.


Reference entries

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.