Dutch Books and Conditional Probability

Kim C Border and Uzi Segal

Economic Journal, 1994, vol. 104, issue 422, 71-75

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.

Date: 1994
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