On confirmation and rational betting

Extract

The purpose of this paper is to analyze rational betting. In particular, we concentrate on one necessary feature of rational betting, the avoidance of certainty of losing to a clever opponent. If a bettor is quite foolish in his choice of the rates at which he will bet, ah opponent can win money from him no matter what happens.

This phenomenon is well known to professional bettors—especially bookmakers, who must as a matter of practical necessity avoid its occurrence. Such a losing book is called by them a “dutch book.” Our investigations are thus concerned with necessary and sufficient conditions that a book not be “dutch.”

De Finetti [3] has started with the same idea and used it as a foundation for the theory of probability. It is our aim to consider the same subject more precisely and attempt to answer some questions about desirable features of a confirmation function. We wish to connect the ideas of De Finetti with those of Carnap [1] and Hossiasson-Lindenbaum [6]. The results expressed by Theorem 1 are essentially contained in De Finetti's work. Theorems 3 and 4 seem to be new.

The confirmation functions which we consider will be functions with two sentences as arguments taking real numbers as values. Intuitively, C(h, e) will represent the rate at which a bettor would be willing to bet on the hypothesis h if he knew the information expressed by the sentence e, the evidence.