ABSTRACT
K nowing the mathematical expectation associated with a course of action al-lows one to make projections based on how many times the action is performed. If an investment is expected to earn $1,000 per year and we hold the investment for ten years, then the best estimate of our total earnings after ten years would be $10,000. Predictions of this sort can’t be made with certainty because the earnings are, at best, expected. Nevertheless, the calculation gives us something to work with and appears to be a good, if not the best, estimate of what will actually occur. We can also use mathematical expectation to compare the expected outcomes of two or more actions. For example if investing a given amount of money in stocks gives an expected profit of $10,000 after one year and investing the same amount in bonds gives an expected profit of $20,000 after one year, a rational investor would invest in bonds.
