The mean The expected value or average of a random variable Computed as the sum of the probabilities that different outcomes will occur multiplied by the resulting payoffs Ex/=q1x1+q2x2+….+qn where xi is payoff i, qi is the probability that payoff i occurs, and q1+ g2 The mean provides information about the average value of a random variable but yields no information about the degree of risk associated with the random variable Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 The Mean • The expected value or average of a random variable • Computed as the sum of the probabilities that different outcomes will occur multiplied by the resulting payoffs: E[x] = q1 x1 + q2 x2 +…+qn xn , where xi is payoff i, qi is the probability that payoff i occurs, and q1 + q2 +…+qn = 1. • The mean provides information about the average value of a random variable but yields no information about the degree of risk associated with the random variable