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Dutch Books and Conditional Probability
Kim C. Border and Uzi Segal
The Economic Journal
Vol. 104, No. 422 (Jan., 1994), pp. 71-75
Stable URL: http://www.jstor.org/stable/2234675
Page Count: 5
You can always find the topics here!Topics: Bookmaking, Betting, Dutch book argument, Conditional probabilities, Maximin, Expected utility, Expected values, Decision theory, Assumption of risk, Prices
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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. We 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.
The Economic Journal © 1994 Royal Economic Society