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Dutch Books and Conditional Probability

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  • Border, Kim C
  • Segal, Uzi

Abstract

An oddsmaker who does not update odds in accordance with conditional probability can be subjected to a sure loss. Such a losing situation is called a Dutch book. This is often presented as an argument for setting odds in accordance with conditional probability. The authors point out that if the strategic aspects of oddsmaking are taken into account (choice of odds is a strategic choice in games against bettors), then it is possible that, in the equilibrium of the game, posted odds need not be updated 'correctly.' This calls into question the role of such arguments in the foundations of decision theory. Copyright 1994 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 422 (January)
Pages: 71-75

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Handle: RePEc:ecj:econjl:v:104:y:1994:i:422:p:71-75

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Cited by:
  1. Leeat Yariv & David Laibson, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," 2004 Meeting Papers 867, Society for Economic Dynamics.
  2. Cubitt, Robin P. & Sugden, Robert, 2001. "On Money Pumps," Games and Economic Behavior, Elsevier, vol. 37(1), pages 121-160, October.
  3. Border, K.C. & Segal, U., 1997. "Coherent Odds and Subjective Probability," UWO Department of Economics Working Papers 9717, University of Western Ontario, Department of Economics.
  4. Leeat Yariv, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," Theory workshop papers 658612000000000072, UCLA Department of Economics.
  5. Diecidue, Enrico & Wakker, Peter P., 2002. "Dutch books: avoiding strategic and dynamic complications, and a comonotonic extension," Mathematical Social Sciences, Elsevier, vol. 43(2), pages 135-149, March.

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