Subjective Probability

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What is 'Subjective Probability'

Subjective probability is a probability derived from an individual's personal judgment about whether a specific outcome is likely to occur. It contains no formal calculations and only reflects the subject's opinions and past experience. Subjective probabilities differ from person to person, and they contains a high degree of personal bias.

BREAKING DOWN 'Subjective Probability'

An example of subjective probability is asking New York Yankees fans, before the baseball season starts, about the chances of New York winning the World Series. While there is no absolute mathematical proof behind the answer to the example, fans might still reply in actual percentage terms, such as the Yankees having a 25% chance of winning the World Series.

Subjective probability is highly flexible, even in terms of one individual’s belief. While an individual may believe the chance of a specified event occurring is 25%, they could have a different belief when given a specific range from which to choose, such as 25% to 30%. This can occur even if no additional hard data is behind the change.

Understanding Probability

The probability of an event is based on the likelihood of that event occurring. In most forms of probability, quantitative information is gathered and interpreted to help determine this likelihood through a mathematical mechanism, normally relating to the mathematical field of statistics. The percentage chance of a flipped coin landing on heads or tails can be interpreted as a probability, expressed as a 50% chance that it will land heads up, and a 50% chance it will land tails up.

Examples of Events That May Alter Subjective Probability

Subjective probability can be affected by a variety of personal beliefs held by an individual. These could relate back to upbringing as well as other events the person has witnessed throughout his life. Even if the individual’s belief can be rationally explained, it does not make the prediction an actual fact. It is often based on how each individual interprets the information presented to him.

Examples of Subjective Probability

In a scenario in which a person is asked to predict the percentage chance of whether a flipped coin will land with heads or tails up, his initial response may be the mathematically true 50%. If 10 coin flips occur, all resulting in the coin landing tails up, the person may change his percentage chance to a number other than 50%, such as saying the chance of it landing tails up is 75%. Even know the new prediction is mathematically inaccurate, the individual’s personal experience of the previous 10 coin flips has created a situation in which he chooses to use subjective probability.

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