Expected loss: Understanding Expected Loss as an Average
Expected loss weights each possible loss by its probability. It describes an average across the modeled outcomes, not the amount that will necessarily occur.
Use the Expected loss Calculator to enter your own figures and compare the result with the worked example below.
Expected loss formula
Expected loss = Σ(probability_i × loss_i)
Worked example
| Item | Example value |
|---|---|
| Probabilities (%) | 90,10 |
| Loss amounts | 0,10000 |
| Expected loss | 1,000 USD |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
A low expected loss can coexist with a severe rare loss. Review the largest outcomes and probability assumptions separately.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see CFPB: Building a budget. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.