Are All Legal Probabilities Created Equal?

Abstract

Imagine you are offered to play a game at the casino for a cost of one dollar. According to the rules of the game you must first throw a die and then flip a coin. If you guessed both events correctly, you win ten dollars. Like a good rational player you turn to calculate the odds of winning the game, and multiply the probability of the die landing on your guess (1/6) by the probability of guessing the coin toss correctly (1/2). You then reach the conclusion that there is a one in twelve chance to win the game. Turning to cost benefit analysis you realize that the expected benefit from the game (1/12*$10) is smaller than its cost ($1), and therefore decline the offer to play.

Keywords: uncertainty, ambiguity, epxressive law, social norms

JEL Classification: K00