The Fair Betting Utility Interpretation of Probability
Consider again the origins of our subject. The formulation of the de Mere-Pascal-Fermat problem of points was not in terms of equally likely or frequency or personal degree of belief but as a question concerning the value of a player’s position in the game. The issue in general is, if one is to receive a prize or payment, but the amount of that payment is uncertain, then how does that uncertainty affect the value of the prize? A modern development is that this question has been answered in terms of a personal price interpretation of probability. This chapter is our version of the details.
KeywordsUnit Price Initial Endowment Fair Price Axiomatic Theory Risk Neutrality
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