Question

To determine the subjective probability of snow in Alaska tomorrow, we asked an expert whether she...

To determine the subjective probability of snow in Alaska tomorrow, we asked an expert whether she prefers $10 with probability 0.6 or $10 if it snows tomorrow. She selected $10 with probability 0.6. Based on this answer, what can we conclude about the expert's subjective probability of snowing tomorrow? To be more precise, based on this answer, what is the interval of possible values of the corresponding subjective probability?

Homework Answers

Answer #1

Subjective probability is a type of probabilityderived from an individual's personal judgment about whether a specific outcome is likely to occur. It contains no formal calculations and only reflects the subject's opinions and past experience. Here the subjective probability of snowing tomorrow is based on her experience

Let be the probability of snowing tomorrow. Since she prefers $10 with probability 0.6,

we can conclude that . So the possible values of are .

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