What Is Subjective Probability?
Let me explain subjective probability directly to you: it's a type of probability that comes from your own personal judgment or experiences about whether something is likely to happen. There's no math or formulas involved here—it's just your opinion and what you've seen before. Think of it like having a gut feeling when you're deciding on a trade in the market.
Key Takeaways
You need to know that subjective probability is all about individual views on outcome likelihood, drawn from personal judgment and experience without any calculations. It reflects only the person's opinions and past encounters, not data-driven methods. Remember, these probabilities differ from one person to another and carry a lot of personal bias.
How Subjective Probability Works
Here's how it operates: subjective probabilities vary widely because they're loaded with personal bias. Contrast this with objective probability, which you calculate using actual data from observations or historical records. Subjective ones often underpin those market myths or rules of thumb that lead to errors. Probability in general is about the chance of an event happening, and most types use stats and quantitative data to figure it out—like a coin flip being 50-50. But subjective probability is flexible; your belief in an event's chance can shift based on how options are presented, even without new info. It ties back to your upbringing, life events, and how you interpret information—it's explainable but not necessarily factual.
Example of Subjective Probability
Take this example: if I ask Yankees fans before the season about their team's chances of winning the World Series, they might say 25% based on nothing but their feelings— no math proves it. Or consider a coin flip; you know it's objectively 50% for heads or tails. But if you see tails come up 10 times in a row, you might subjectively bump the odds to 75% for tails next time, even though that's not accurate. That's subjective probability in action—your experiences overriding the facts.
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