INST 354 Lecture 12: INST354 Lecture 12: Probability
10 Feb 2019
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We will use probabilities (in the range from 0 to 1) to represent beliefs about what will happen. Usually we mean to summarize people"s subjective beliefs about those events. Although we use numbers that might be interpreted as formal probabilities by a mathematician, we do not assume that these numbers necessarily behave like true probabilities. When we mean to refer to mathematical probabilities, we will make sure the context is clear. (the. Appendix in this book introduces the mathematical laws of probability. ) To spare the reader a lot of technical detail, we will usually just present plausible numbers. The reader who wants to understand these methods can find this information in many other sources (e. g. , dawes & smith, 1985) We will often use simple gambles to illustrate decision-making principles and habits. So, let"s work through the representation of a typical experimental gamble in terms of the decision tree diagrams. Consider the choice between two gambles we described in chapter 1:
