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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- Cubitt, Robin P. & Sugden, Robert, 2001. "On Money Pumps," Games and Economic Behavior, Elsevier, vol. 37(1), pages 121-160, October.
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- 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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