This is a working theory, and I'd like to submit it to a few official Hearthstone blogs at some point. Any suggestions are welcome!
Okay, so let's get started.
When you calculate a card's AV, you'll often find that the AV and the Mana Cost are the same. This is because Blizzard uses a similar system to assign Mana Cost to their cards. However, Mana Cost is assigned in regard to the meta and the card's effect on your deck as a whole. AV is the Absolute Value of a card, standing on its own regardless of the situation or other cards in your deck. When choosing your cards for the Arena, you want to pick cards that have a higher AV than their mana cost. This helps you determine which cards are singularly more powerful than others, which is a necessity when you're at the mercy of the RNG gods and have no idea what cards you'll be given next.
So how do you calculate AV?
First, you find the average of the card's attack and health. A 2/2 card is going to start with 2AV, whereas a 3/5 card is going to start with 4AV.
Second, you tally the card's effect into its AV using the chart below:
EP (or Effect Presence) is more or less how threatening a card's effect is when it's thrown onto the board. To determine a card's total AV, you'll need to use EP to distill Battlecry, Deathrattle, and uncategorized effects into an AV number. I won't cover every effect here because it would take too long, but I'll lay down a few rules of thumb that will help you determine a card's Presence on your own.
EP is how much potential AV a card's effect will bring into the board or your hand in the next two turns. To be more precise, we're looking at the turn the card is played, and then the following turn. If a card takes more than two turns to provide any major benefits, that card gets a big fat zero for EP.
Cards that provide stat buffs gain EP based on the buff's output. A card that gives another card +1/+1 gets 1EP, while a card that gives another card +2/+1 gets 1.5EP.
1EP = 1AV. It's that simple.
In general, minion effects that inflict damage to an enemy minion or hero are calculated as 1 damage = .5EP.
Super important note about spells and damaging effects: some spells, like Assassinate, are extremely difficult to appraise because their effect does not have a numerical value. Spells are normally a judgment call, as they vary enough that assigning an AV number to them is going to be very unrepresentative of the spell's usefulness. Spells that buff the stats of minions or provide numerical bonuses are easier to consider, but it's important to remember that the AV Theory is, for the most part, geared toward minions.
That said, it's best to pick spells that are going to be useful based on your minion picks. Again, this is mostly a judgment call, but if you have a lot of high-damage minions with high mana costs, pick some low-cost spells to keep the enemy at bay until you can throw down your big monsters.
Total AV is the number you are going to pay attention to when selecting cards. You add up the Basic AV from step 1 and the EP from step 2 to find the Total AV.
Here are some examples:
Grimestreet Smuggler has a Basic AV of 3. It has 1EP because it provides a +1/+1 buff to another card. In total, this card has 4AV.
Because the Total AV is higher than the mana cost, the AV Theory indicates that this is an overpowered card. Similar cards that provide +1/+1 to more than one minion gain 1EP per minion.
Grimestreet Informant has a Basic AV of 1. His EP is determined by RNG, but it's safe to assume he will discover a card that has a Total AV of at least 1, so that gives him at least 1EP.
So, his Total AV is at least 2, which is a safe pick considering he will likely discover a card that's even higher than 1AV.
Jade Spirit has a Basic AV of 2.5. Now, remember the two-turn EP rule? Unless you play Jade Spirit after playing several other Jade Golem cards, Jade Spirit is only going to spit out a 1/1 Jade Golem. So Jade Spirit's EP is only 1, making his Total AV a measly 3.5 which is less than his Mana Cost.
You can't assume the RNG will help you when calculating AV, which is why we are doing this in the first place! If you choose a Jade Golem on your 1st pick in the draft, and there are no other Jade Golem cards later on, you're going to be stuck with an underpowered card that isn't going to give you a big advantage on the board.