I'm going to argue that the probability measures we conventionally use should be interpreted
as being subjective rather than objective phenomena, if only as a result of the knowledge
limitations of human experience.
Even if objectively objective probability can be demonstrated as an unambiguously verifiable
property of the physical world, our necessarily imperfect access to such aspects of reality
would necessitate the construction of subjective probability measures for examinations of human
behavior.
The view that there are ontologically privileged, objectively verifiable probabilities and expectations
will be examined and criticized.
It appears to be one source of the discredited, though nonetheless widespread and persistent
belief in the efficacy and feasibility of central economic planning.
One of the most important economic proponents of the subjective interpretation was Ludwig
von Mises, who asserts that deterministic causality is assumed to underlie apparently
random events.
We cannot definitively prove causal determinism, but because it is a necessary presupposition
of human action, it is not a hypothesis but a Kantian category of the understanding.
The next most important proponent of subject probability among economists was Keynes. In
Mises and Keynes' subjective formulation of probability, randomness is not actually
present in the causally deterministic physical world, but is introduced in our understanding
of the world by limitations on our knowledge, which can never be completely removed. We
can only have finite knowledge of an infinite universe. Hayek's views on how the brain
In the social sciences, if consumer behavior were uncaused, there would be no basis for
entrepreneurial planners to respond to or anticipate that behavior with human action.
In the absence of this deterministic causality, acting man would be helplessly reduced to
a passive observer.
We would not plant crops or engage in production because our output would be no more likely
to grow under cultivation or planned assembly than it would appear spontaneously as if by
magic.
And under the assumption that deterministic causality governs every aspect of reality,
this is something for which we can never possess, imagine or desire perfect or complete knowledge
at either subatomic or macroscopic scales.
The mathematician Augustus de Morgan wrote in 1838, quote, probability is the feeling
of the mind, not the inherent property of a set of circumstances.
This view would largely be adopted by Keynes in the Treatise on Probability.
This paper suggests an explanation for the historical curiosity of probabilities being
mistakenly considered objective properties of the real world.
The objective interpretation of probability views uncertainty as a property which inheres
in the universe, rather than a consequence of our knowledge limitations.
The mathematics of the relative frequency approach, which dictates one sixth as the
probability for the role of a fair die, one half with a toss of a fair coin, etc. is invariant
across individuals.
In this sense, relative frequency is objective, verifiable, and ontologically privileged.
This view was advanced most forcefully by Ludwig von Mises' younger brother, the mathematician,
engineer and aerodynamicist, Richard von Mises.
So it's all in the family.
If probability is in fact subjective, there can be no basis to reject the purportedly
objective relative frequency approach as long as it is understood as only one among many
possible metrics.
In this sense, the subjective interpretation of probability is more general and the objective
Interpretation is a special case. Subjective probability merely requires that relative
frequencies be viewed as only one among several valid approaches to defining probabilities.
Relative frequency differs from alternative probability measures in that it is widely
accepted as a privileged and objectively verifiable assessment. Subjectivity has two inroads to
overcoming the ontologic primacy of relative frequency mathematics. First, information
varies across individuals, making probability assessments subjective. Second, the class
definitions of the relative frequency approach may also vary across individuals, making the
applicability of the relative frequency approach idiosyncratic and thus subjective. I will
emphasize that I'm not attacking the validity of the mathematics of relative frequency,
which is beyond question, but the fair die and fair coin hypothesized by the relative
frequency definition have no more existence in reality than the straight line of Euclidean
geometry. They are all conceptual constructs rather than physical objects.
The smallest objects known in the physical world are the smallest measuring sticks we
can use against subatomic phenomena. These are short wavelength photons also known as
has high energy quanta, which have correspondingly high frequencies and energies.
The more precise we attempt to make a subatomic measurement, the higher the energy, because
the shorter the wavelength of the photons we have to use as measuring sticks, and the
more this perturbs the target particles we'd be trying to measure.
In honor of Werner Heisenberg, I will share this physics joke, a neutron walks into a
The Neo-Indeterminist School of Physics arrived at the conclusion that the measurement uncertainty
is a property of the external reality, not of the limitations of human understanding.
If we cannot simultaneously determine the location and momentum of an electron, we cannot rigorously
assert that the particle has both definite location and momentum.
Einstein, for one, rejected this interpretation.
God does not play dice with the universe.
One way around this difficulty is the appeal to Kant's categories of the understanding.
We cannot conceive of the particle apart from its occupying some location and having some
I wanted a picture of Glenn Ford cheating at craps in Gilda, but this was as close as I could come and I think it's, you know, contemplating this kind of image makes us better rounded people.
Gilda is a 1946 film starring Rita Hayworth and Glenn Ford.
I want to argue that it's one of the most culturally significant and most entertaining
films ever made by Columbia Studios.
In the treatise on probability, Keynes attempted to generalize beyond the strict relative frequency
definition, defining probability as the, quote, objectively rational degree of belief in a
and Proposition Given the Available Evidence.
Now this weirdly sort of combines both objective and subjective characteristics.
Keynes really wanted to say everything I'm trying to argue for is objectively correct.
However, he was led into almost inevitably to acknowledge the subjective aspects of probability.
Keynes unfortunately failed to recognize that evidentiary information varies across individuals
and necessarily always must, as subsequently emphasized by Hayek.
Keynes' baseline assumption was that there should always be an objective, rational assessment
all individuals should arrive at, given that they apply the rules of probability correctly,
given the same evidence.
To Keynes, a probability is a rationally justified degree of belief, quote unquote, objectively
derived by logic, rather than a matter of individual subjective evaluation.
Keynes should be applauded as a precursor of Ludwig von Mises in advancing the subjective
interpretation, but he was somewhat inconsistent.
His view that subjective probabilities could conform or converge to an objective limit
would have supported arguments for central economic planning, though Keynes never pursued
This is Trigby Havelmo. Havelmo suggested economic models rely on a subjective process of identifying variables of interest, and then hypothesizing relationships among them. The choice of variables, which relationships to include, and the form of relationships posited among them, is subjective and relies on aesthetic intuition as much as on scientific analysis.
And he might, he didn't actually say this, but he might have said that building an econometric
model is as much an art as a science.
Avelmo suggested that frequency of occurrence can be substituted for theoretical probability
as a practical matter, but it is not clear that this is always necessary or even possible.
In individual cases, the ex ante probability is superseded once the individual case has
has occurred, and when repetitive trials are not invoked, the a priori confidence is always
a subjective assessment.
The rigorous notion of the relative frequency approach exists only subjectively in our rational
mind, or in some cases irrational minds, rather than objectively in the external world.
Nevertheless, Havelmo argues that the relative frequency approach can serve, quote unquote,
as a tool for deriving practical statements.
The subjective interpretation of proposed probability measures is always and everywhere
more general and powerful than the alternative objective interpretation typified by the relative
frequency approach.
In fact, any proposed objective measure must always be nested within the class of subjective
measures as a special case.
Any proponent of objective probability might retort that this amounts to the assertion
that their correct answer, the relative frequency or objectively correct probability, is always
a subset of the set of all possible probabilities, including wrong answers.
In their view, subjective probabilities which conflict with the relative frequency definition
are always and everywhere wrong answers, never mind that they underlie much of human behavior
and can offer outlets for inarticulable intuition,
insight and entrepreneurial awareness.
Several arguments for viewing probability
as subjective were presented.
Uncertainty need not be viewed as a property
of the external world, but of the limitations
on our knowledge which can never be fully overcome.
Mises' view that the world is governed
by deterministic causality is not one which can be proven,
nor can it be disproven since the issue
If the view is ontologically indeterminate, the case for objective probability is necessarily much weaker than for an encompassing subjective view of probability.
Thank you very much.