Question

Subjective probabilities may be determined by exposing persons to risk- taking situations And finding the odds at which they would consider it fair to bet on the outcome. The odds are then converted into probabilities by means of the formula of Exercise 2.15. For instance, if a person feels that 3 to 2 are fair odds that a business venture will succeed (or that it would be fair to bet $ 30 against $ 20 that it will succeed) , the probability is 3 / 3 + 2 = 0.6 that the business venture will succeed. Show that if subjective probabilities are determined in this way, they satisfy
(a) Postulate 1 on page 28;
(b) Postulate 2.


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  • CreatedNovember 04, 2015
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