Analysing your IQ
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Evaluate choices by probability × payoff, not by the most vivid outcome.
Expected Value isn't just theory—it's a practical framework for better decisions. This page explains how it works and how to apply it.
When stakes are high, estimate rough probabilities and compare expected outcomes across options.
This model works because it strips away irrelevant detail and exposes the core structure of a problem. Most people reason by analogy ("what do others do?"); this framework forces you to think from first principles.
A 10% chance at $100,000 has higher expected value than a 90% chance at $5,000.
This model is most useful when you're stuck. If your current approach isn't working, Expected Value often reveals the hidden constraint.
Over-applying: Not every problem benefits from this model. Match the tool to the situation.
Under-applying: People learn the model but don't practice it. Application takes repetition.
Misunderstanding the principle: Surface-level understanding leads to poor execution. Study the examples.
Ignoring context: The same model works differently in different domains. Adapt accordingly.
Identify a current decision you're facing. Write down the assumptions you're making. Challenge each one.
Look at a past failure. Apply Expected Value retroactively—would it have changed the outcome?
Teach the model to someone else. If you can't explain it simply, you don't understand it well enough.
Set a reminder to apply this model once per week for the next month. Track the results.
Expected Value often pairs well with other Reasoning models. Combining frameworks multiplies their power.
Mental models require specific cognitive traits to execute. Do you have the Intelligence for this?
Evaluate choices by probability × payoff, not by the most vivid outcome.
When stakes are high, estimate rough probabilities and compare expected outcomes across options.
A 10% chance at $100,000 has higher expected value than a 90% chance at $5,000.
Use Expected Value when facing complex decisions in the reasoning domain, when conventional approaches aren't working, or when you need a structured framework for analysis.
Expected Value is used by strategic thinkers, business leaders, and anyone who needs to make high-stakes decisions under uncertainty. It's particularly popular in investing, startups, and engineering.
Yes. Mental models are learnable skills, not innate talents. The key is deliberate practice—actively applying the model to real decisions, not just reading about it.