Ranking Procedures and Subjective Probability Distributions

For the most part, modern management has become gradually conditioned to techniques involving the use of subjective probability distributions. In spite of this conditioning, there remain a few who are still somewhat skeptical with regard to the use of such distributions. However, in many instances principal objections are leveled, not toward subjectivity per se, but, rather, toward "nebulous subjectivity." Many managers still associate an air of mysticism with the development of subjective probability distributions. This is not surprising in view of the facts that (1) relatively little material in pertinent literature is devoted to discussions of methods for deriving subjective distributions, and (2) a large percentage of those discussions which do appear can best be characterized as hand-waving approaches. The purpose of the present article is two-fold. First, the article proposes a specific, logical, and consistent procedure for deriving subjective probability distributions. The procedure, which involves the use of statistical ranking techniques, is exemplified for the purpose of clarity. Second, and possibly even more important than the first objective, the procedure is set forth in the hope that it will stimulate further activity toward development of improved methods for deriving subjective distributions.