A clear-eyed look at expected value reasoning and why most people consistently ignore it — to their detriment.
The Formula
Expected value (EV) is probability multiplied by magnitude: the sum of all possible outcomes, each weighted by its likelihood. It is the backbone of rational decision-making under uncertainty, used by poker players, actuaries, venture capitalists, and anyone else who thinks carefully about the future.
Why People Ignore It
Three culprits: probability neglect (we treat low-probability events as either impossible or certain), scope insensitivity (we don't viscerally feel the difference between 1,000 and 100,000), and present bias (future payoffs are heavily discounted relative to immediate ones).
EV in Practice
Applying EV thinking does not require a spreadsheet. It requires the habit of asking: what are the possible outcomes, how likely is each, and how much does each outcome matter to me? That mental routine, applied consistently, produces dramatically better decisions over time.
The Long Game
EV is a long-run concept. Any single decision can go wrong even if it was correct ex ante. The goal is not to be right every time; it is to make decisions that are right on average — and trust that the distribution will take care of you.
