Expected return

The expected return is the weighted-average most likely outcome in gambling, probability theory, economics or finance.

Discrete scenarios

In gambling and probability theory, there is usually a discrete set of possible outcomes. In this case, expected return is a measure of the relative balance of win or loss weighted by their chances of occurring.

For example, if a fair die is thrown and numbers 1 and 2 win ¤1, but 3-6 lose ¤0.5, then the expected gain per throw is

¤1 × 1/3 - ¤0.5 × 2/3 = ¤0:

the game is thus fair.

Continuous scenarios

In economics and finance, it is more likely that the set of possible outcomes is continuous (a numerical or currency value between 0 and infinity). In this case, simplifying assumptions are made about the distribution of possible outcomes. Either a continuous probability function is constructed, or a discrete probability distribution is assumed

See also

• Abnormal return
• Expected value

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