Greenwood press

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EXPECTED VALUE

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compute probabilities based on past experience for each cost. They then compare
the expected values and choose the option that has the least expected cost. A con-
troversial industrial use of expected value occurred in the 1970s with the design
of the Ford Pinto automobile. It had a gas tank that was likely to explode when
the car suffered a rear-end collision. The Ford Motor Company computed expect-
ed costs of improving the Pinto gas tank versus the expected costs of settling law-
suits resulting from deaths in Pinto explosions. The latter value was the lesser, so
Ford executives chose to omit gas-tank improvements.
Law firms can use expected values to determine whether or not a client
should continue a suit, settle without a trial, or go to trial. Experience with sim-
ilar lawsuits provides the probabilities. The cost of litigation and the potential
awards provide the estimates of net “winnings.” If the expected value of the net
winnings in a trial is negative, the law firm should advise the client to drop the
suit or accept a settlement.
Ecologists have used expected value to estimate water supplies in the Great
Plains based on probability and volume estimates of soil moisture, rain, and con-
sumption by humans, industry, agriculture, and natural vegetation. The military
uses expected values in conducting “war games.” Costs in military operations,
loss of life, and destruction of property are associated with probabilities to com-
pare the expected values of different strategies.
The French mathematician and philosopher Blaise Pascal (1623–1662) pro-
vided one of the earliest and most intriguing uses of expected value. In what is
now called “Pascal’s wager,” he argued that probabilities and payoffs associated
with belief in God versus not believing in God would result in an expected value
that supported belief in God. Almost 400 years later, Pascal’s assumptions and
arguments are still debated by theologians and philosophers.
online sources for further exploration
The cereal box problem

Contest odds

Determination of the decision-maker’s utility function

The “dummies guide” to lottery design
umeds/958/01111622.htm>
Life-expectancy data
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