What is a major disadvantage of using expected value calculations in decision-making?

The major disadvantage of using expected value calculations in decision-making is that the probabilities employed in these calculations are often very subjective. This subjectivity arises because the probabilities assigned to various outcomes can vary significantly based on personal judgments or estimates rather than objective data. When decision-makers rely on their interpretations or beliefs about the likelihood of certain events, it can lead to biases in the expected value calculations. Consequently, the overall conclusions drawn from these calculations may not accurately reflect the true risk and uncertainty associated with the decision at hand.

This aspect is particularly critical as inaccurate probability assessments can skew the expected value results, potentially resulting in poor strategic decisions. Therefore, understanding the nature of probability assessment in expected value calculations is vital for effective decision-making.