Dutch Books and Conditional Probability
AbstractAn 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 InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 104 (1994)
Issue (Month): 422 (January)
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- Leeat Yariv & David Laibson, 2004.
"Safety in Markets: An Impossibility Theorem for Dutch Books,"
2004 Meeting Papers
867, Society for Economic Dynamics.
- David Laibson & Leeat Yariv, 2007. "Safety in Markets: An Impossibility Theorem for Dutch Books," Levine's Bibliography 122247000000001746, UCLA Department of Economics.
- Kim C. Border & Uzi Segal, 2001.
"Coherent Odds and Subjective Probability,"
Boston College Working Papers in Economics
513, Boston College Department of Economics.
- Leeat Yariv, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," Theory workshop papers 658612000000000072, UCLA Department of Economics.
- Cubitt, Robin P. & Sugden, Robert, 2001. "On Money Pumps," Games and Economic Behavior, Elsevier, vol. 37(1), pages 121-160, October.
- 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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