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30<br />
Now I’d like to introduce a term that is the bedrock of profitable<br />
gambling: expectation value. This is commonly called EV for<br />
short. Expectation value is the average amount of money you<br />
can expect to win or lose when you make a wager. If the<br />
average amount is less than zero, then you’re going to lose<br />
money on average. This is called a negative EV bet (-EV). If<br />
the average amount is more than zero, then you’re going to make<br />
money on average. This is called a plus EV bet (+EV). A wager<br />
right at zero is called neutral EV. The goal of profitable<br />
gambling is to be involved in +EV bets as much as possible and<br />
to avoid –EV bets. Your next question should be “How do I<br />
know if the bet is +EV or –EV?” Here’s how. There are three<br />
steps.<br />
1. Identify each possible outcome and the probability of it<br />
happening.<br />
2. Multiply the probability of each outcome by the result it<br />
has.<br />
3. Add together all the results from step two.<br />
Let’s get back to our coin story and go through these three steps<br />
to find the EV of this wager.<br />
1. The coin only has two possible outcomes, heads and<br />
tails. They both will happen 50% of the time. It’s<br />
easiest for me to use the decimal for the probability,<br />
which is 0.5 in this case. Notice the percentages added<br />
together equal 100%. This is very important because<br />
there are no other possible outcomes (assuming it never<br />
lands on its edge). So, step one is complete, and we’re<br />
on to step two.<br />
2. If the coin lands on heads, we will lose $10. We then<br />
multiply this result by the probability of it happening.
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