Information about Coherence (philosophical Gambling Strategy)
In a thought experiment proposed by the Italian probabilist Bruno de Finetti in order to justify Bayesian probability, an array of wagers is coherent precisely if it does not expose the wagerer to certain loss regardless of the outcomes of events on which he is wagering, provided his opponent chooses judiciously.
But if you set the price of the third ticket too low, your prudent opponent will buy that ticket and sell you the other two tickets. By considering the three possible outcomes (Red Sox, Yankees, some other team), you will see that regardless of which of the three outcomes eventuates, you lose. An analogous fate awaits you if you set the price of the third ticket too high relative to the other two prices. This parallels the fact that probabilities of mutually exclusive events are additive (see probability axioms).
A person who has set prices on an array of wagers in such a way that he or she will suffer a net loss regardless of which outcome eventuates is said to have made a Dutch book.
(where the second price above is that of the bet that includes the refund in case of cancellation). Your prudent opponent writes three linear inequalities in three variables. The variables are the amounts he will invest in each of the three promises; the value of one of these is negative if he will make you buy that promise and positive if he will buy it from you. Each inequality corresponds to one of the three possible outcomes. Each inequality states that your opponent's net gain is more than zero. A solution exists if and only if the determinant of the matrix is not zero. That determinant is:
Thus your prudent opponent can make you a sure loser unless you set your prices in a way that parallels the simplest conventional characterization of conditional probability.
Operational subjective probabilities as wagering odds
You must set the price of a promise to pay $1 if John Smith wins tomorrow's election, and $0 otherwise. You know that your opponent will be able to choose either to buy such a promise from you at the price you have set, or require you to buy such a promise from him/her, still at the same price. In other words: you set the odds, but your opponent decides which side of the bet will be yours. The price you set is the "operational subjective probability" that you assign to the proposition on which you are betting."Dutch books"
A very trivial Dutch book
The rules do not forbid you to set a price higher than $1, but if you do, your prudent opponent may sell you that high-priced ticket, and then your opponent comes out ahead regardless of the outcome of the event on which you bet. Neither are you forbidden to set a negative price, but then your opponent may make you pay him to accept a promise from you to pay him later if a certain contingency eventuates. Either way, you lose. These lose-lose situations parallel the fact that a probability can neither exceed 1 nor be less than 0.A somewhat less trivial and more instructive Dutch book
Now suppose you set the price of a promise to pay $1 if the Boston Red Sox win next year's World Series, and also the price of a promise to pay $1 if the New York Yankees win, and finally the price of a promise to pay $1 if either the Red Sox or the Yankees win. You may set the prices in such a way that
But if you set the price of the third ticket too low, your prudent opponent will buy that ticket and sell you the other two tickets. By considering the three possible outcomes (Red Sox, Yankees, some other team), you will see that regardless of which of the three outcomes eventuates, you lose. An analogous fate awaits you if you set the price of the third ticket too high relative to the other two prices. This parallels the fact that probabilities of mutually exclusive events are additive (see probability axioms).
A person who has set prices on an array of wagers in such a way that he or she will suffer a net loss regardless of which outcome eventuates is said to have made a Dutch book.
Conditional wagers and conditional probabilities
Now imagine a more complicated scenario. You must set the prices of three promises:- to pay $1 if the Red Sox win tomorrow's game; the purchaser of this promise loses his bet if the Red Sox do not win regardless of whether their failure is due to their loss of a completed game or cancellation of the game, and
- to pay $1 if the Red Sox win, and to refund the price of the promise if the game is cancelled, and
- to pay $1 if the game is completed, regardless of who wins.
(where the second price above is that of the bet that includes the refund in case of cancellation). Your prudent opponent writes three linear inequalities in three variables. The variables are the amounts he will invest in each of the three promises; the value of one of these is negative if he will make you buy that promise and positive if he will buy it from you. Each inequality corresponds to one of the three possible outcomes. Each inequality states that your opponent's net gain is more than zero. A solution exists if and only if the determinant of the matrix is not zero. That determinant is:
Thus your prudent opponent can make you a sure loser unless you set your prices in a way that parallels the simplest conventional characterization of conditional probability.
Coherence
It can be shown that the set of prices is coherent when they satisfy the probability axioms and related results such as the inclusion-exclusion principle (but not necessarily countable additivity).See also
References
- Lad, Frank. Operational Subjective Statistical Methods: A Mathematical, Philosophical, and Historical Introduction. Wiley, 1996.
A thought experiment (from the German term Gedankenexperiment, coined by Hans Christian Ørsted) in the broadest sense is the use of a hypothetical scenario to help us understand the way things actually are. There are many different kinds of thought experiments.
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Bruno de Finetti (June 13, 1906 - July 20, 1985) was an Italian probabilist and statistician, noted for the "operational subjective" conception of probability. The classic exposition of his distinctive theory is the 1937 "La prévision: ses lois logiques, ses sources subjectives,"
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Bayesian probability is an interpretation of the probability calculus which holds that the concept of probability can be defined as the degree to which a person (or community) believes that a proposition is true.
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In gambling a Dutch book or lock is a set of odds and bets which guarantees a profit, regardless of the outcome of the gamble. It is associated with probabilities implied by the odds not being coherent.
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In logic, two mutually exclusive (or "mutual exclusive" according to some sources) propositions are propositions that logically cannot both be true. To say that more than two propositions are mutually exclusive may, depending on context mean that no two of them can both be true, or
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Kolmogorov axioms.
where is the sample space.
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First axiom
The probability of an event is a non-negative real number:where is the sample space.
Second axiom
The probability that some elementary event in the entire sample space will occur is 1...... Click the link for more information.
In gambling a Dutch book or lock is a set of odds and bets which guarantees a profit, regardless of the outcome of the gamble. It is associated with probabilities implied by the odds not being coherent.
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In algebra, a determinant is a function depending on n that associates a scalar, det(A), to every n×n square matrix A. The fundamental geometric meaning of a determinant is as the scale factor for volume when A
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Conditional probability is the probability of some event A, given the occurrence of some other event B. Conditional probability is written P(A|B), and is read "the probability of A, given B".
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Kolmogorov axioms.
where is the sample space.
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First axiom
The probability of an event is a non-negative real number:where is the sample space.
Second axiom
The probability that some elementary event in the entire sample space will occur is 1...... Click the link for more information.
In combinatorial mathematics, the inclusion-exclusion principle (also known as the sieve principle) states that if A1, ..., An are finite sets, then
where |A
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where |A
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In problems of fair division, divide and choose (also I cut, you choose) is a two-party proportional envy-free allocation protocol.[1] The protocol also works for dividing an undesirable, as in chore division.
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John Wiley & Sons, Inc.
Public (NYSE: JWA , NYSE: JWB )
Founded 1807 in New York, New York
Headquarters Hoboken, New Jersey
Key people William J.
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Public (NYSE: JWA , NYSE: JWB )
Founded 1807 in New York, New York
Headquarters Hoboken, New Jersey
Key people William J.
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