Binary Outcome

An outcome that tends toward one of two extremes, such as a large success or near-total loss, with little in between.

Example

A biotech company whose value depends largely on a single trial result.

Important

Binary positions call for smaller sizes, diversification or specialist judgement.

Related terms

• Expected value — The average outcome of a decision if you could repeat it many times: each possible result multiplied by its probability, all added together.
• Clinical Trial Phases — The sequential stages of testing a drug candidate in humans, typically Phase I, II and III, before regulatory review for approval.

Lessons that explain it

• Biotech outcomes are often binary; healthtech outcomes depend on who pays — Biotech value is driven by clinical trials with low overall success rates and long timelines. Healthtech depends on proving clinical or economic value and securing payment from hospitals, insurers or health systems. (13 min)

All 578 terms in the Investing glossary