In decision analysis under uncertainty, what is EMV?

• A. The minimum expected value
• B. The average payoff ignoring probabilities
• C. The probability-weighted average of monetary outcomes across states of nature
• D. The maximum possible payoff

Answer: (C)

EMV is the probability-weighted average of monetary outcomes across states of nature. It represents the expected monetary value you would obtain if you could repeat the decision many times under the same probabilities. To compute, multiply each possible payoff by the probability of its state and sum across all states. This approach assumes risk neutrality, focusing on the average payoff rather than a single best or worst outcome. It differs from simply averaging payoffs without probabilities or from selecting the maximum payoff, since those don't account for how likely each state is.