Expected Value
The probability-weighted average outcome of a bet, measuring whether a trade has positive or negative long-run profitability.
Definition
Expected value (EV) is the sum of each possible outcome multiplied by its probability. For a binary prediction market trade: EV = p × profit_if_win + (1 − p) × loss_if_lose. A trade with positive EV is profitable over many repetitions; a negative-EV trade loses money in the long run regardless of short-term results.
In practice
A bot buying YES at $0.45 with an estimated true probability of 0.55 and a taker fee of $0.008 per share calculates: EV = 0.55 × ($1.00 − $0.45 − fee) + 0.45 × (−$0.45 − fee). At 100 shares, a positive EV confirms the trade is worth taking. Every predtools bot applies an edge threshold (e.g., "only trade if estimated probability exceeds market price by at least 3%") to ensure trades are positive EV before considering Kelly sizing. Negative-EV trades destroy capital even with perfect execution.