In the context of engineering decision-making under uncertainty, which of the following best explains why the Expected Value approach may fail when assessing extreme or "black swan" events ?

Question

In the context of engineering decision-making under uncertainty, which of the following best explains  why the Expected Value approach may fail when assessing extreme or "black swan" events ?

Accepted Answer

The impact and probability of extreme events are difficult to quantify, and rare occurrences require large sample sizes to be statistically meaningful.

Answer

The statistical assumptions behind expected value always hold for rare events.

Answer

High-probability events make expected value less accurate than standard deviation.

Answer

Expected value overestimates the impact of unlikely events due to regression to the mean.

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In the context of engineering decision-making under uncertainty, which of the fo...

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