Objective Probability

DEFINITION of 'Objective Probability'

The probability that an event will occur based an analysis in which each measure is based on a recorded observation, rather than a subjective estimate. Objective probabilities are a more accurate way to determine probabilities than observations based on subjective measures, such as personal estimates.

BREAKING DOWN 'Objective Probability'

For example, one could determine the objective probability that a coin will land "heads" up by flipping it 100 times and recording each observation. When performing any statistical analysis, it is important for each observation to be an independent event that has not been subject to manipulation. The less biased each observation is, the less biased the end probability will be.

RELATED TERMS
  1. Subjective Probability

    A probability derived from an individual's personal judgment ...
  2. Joint Probability

    A statistical measure where the likelihood of two events occurring ...
  3. Quartile

    A statistical term describing a division of observations into ...
  4. Compound Probability

    A mathematical term relating to the likeliness of two independent ...
  5. Prior Probability

    The probability that an event will reflect established beliefs ...
  6. Addition Rule For Probabilities

    A statistical property that states the probability of one and/or ...
Related Articles
  1. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
  2. Professionals

    Basic Probability Concepts

    CFA Level 1 - Probability Concepts - Basics. Discusses randomness and various types of probabilities.
  3. Forex Education

    Financial Forecasting: The Bayesian Method

    This method can help refine probability estimates using an intuitive process.
  4. Professionals

    Joint Probability

    CFA Level 1 - Probability Concepts - Joint Probability
  5. Fundamental Analysis

    Scenario Analysis Provides Glimpse Of Portfolio Potential

    This statistical method estimates how far a stock might fall in a worst-case scenario.
  6. Professionals

    Scenario / What-If Analysis

    We look at some ways that you can evaluate your project.
  7. Professionals

    Common Probability Distributions

    CFA Level 1 - Common Probability Distributions - Basics
  8. Forex Education

    Trading Is An Art, Not A Science

    Develop a logical, intelligent approach to currency trading based on 10 key rules.
  9. Professionals

    Basic Statistical Calculations

    CFA Level 1 - Statistical Concepts And Market Returns - Basic Calculations
  10. Economics

    Understanding Management by Objectives

    Management by objectives is a process in which a manager and an employee agree on specific performance goals and then develop a plan to reach those goals.
RELATED FAQS
  1. You observe the following exchange rates in the following markets ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  2. What asset allocation should I use for my retirement portfolio?

    Learn the basics of planning an asset allocation strategy for retirement using risk constraints and return objectives to ... Read Answer >>
  3. What is the difference between work in progress and work in process?

    Learn how financial institutions can use Bayesian analysis to model credit default risk, and understand how derivatives have ... Read Answer >>
  4. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of interest ... Read Answer >>
  5. What happens if a company's earnings fall short of estimates?

    Understand what it means when a company "misses earnings" and does not live up to consensus estimates, and learn why most ... Read Answer >>
  6. How is correlation used differently in finance and economics?

    Take a look at the similarities and differences between how statistical correlation is applied in economics as opposed to ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center