Subjective Probability

Loading the player...

DEFINITION of 'Subjective Probability'

A probability derived from an individual's personal judgment about whether a specific outcome is likely to occur. Subjective probabilities contain no formal calculations and only reflect the subject's opinions and past experience.

BREAKING DOWN 'Subjective Probability'

Subjective probabilities differ from person to person. Because the probability is subjective, it contains a high degree of personal bias. An example of subjective probability could be asking New York Yankees fans, before the baseball season starts, 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.

RELATED TERMS
  1. Probability Distribution

    A statistical function that describes all the possible values ...
  2. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  3. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  4. Value At Risk - VaR

    A statistical technique used to measure and quantify the level ...
  5. A Priori Probability

    Probability calculated by logically examining existing information. ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
  2. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  3. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  4. Bonds & Fixed Income

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  5. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  6. Active Trading Fundamentals

    How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  7. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  8. Term

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
  9. Active Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  10. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
RELATED FAQS
  1. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  2. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  3. Do plane tickets get cheaper closer to the date of departure?

    The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >>
  4. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center