1 Chapter 8 Subjective Probability

2 Chapter 8, Subjective Probability Learning Objectives: Uncertainty and public policy Subjective probability-assessment technique Heuristics and Biases Experts and Probability Assessment

3 Chapter 8,Subjective Probability Subjective assessments of uncertainty are an important element of decision analysis. In modern decision analysis subjective judgments of uncertainty can be made in terms of probability. Need to develop a approach to measure the uncertainty that we feel

4 Uncertainty and Public Policy Fruit Frost, Farmers occasionally must decide whether to protect a crop from potentially damaging frost. Decision must be made in terms of probability Earthquake Prediction, Geologists are beginning to develop ways to assess the probability of major earthquakes.

5 Uncertainty and Public Policy Environment Impact Statements Require assessments of the risks assessments of the risks associated with proposed projects. Projects involving pesticides and herbicides, the chances of cancer and other health risks are assessed.

6 Uncertainty and Public Policy Public Policy and Scientific Research Scientists learn of the possible presence of conditions that may require action by the government. Medical Diagnosis Many physicians in hospital intensive-care units (ICUs) have access to a complex computer system known as APACHE III.

7 Uncertainty and Public Policy APACHE III (Acute Physiology, Age, and Chronic Health Evaluation). APACHE III evaluates the patient’s risk as a probability of dying either in the ICU or later in the hospital.

8 Assessing Discrete Probabilities There are three basic methods for assessing discrete probabilities The first is to have decision maker assess the probability directly “ What is your belief regarding the probability that event such and such will occur?

9 Assessing Discrete Probabilities The second method is to ask about the bets that the decision maker would be willing to place The third approach adopts a thought- experiment strategy Decision maker compares two lotterylike games, each of which can result in a prize.

10 Assessing Discrete Probabilities Third method approach We would ask the decision maker to compare the lottery : Win prize A if the Lakers win Win prize B if the Lakers lose With the lottery Win prize A with known probability p. Win prize B with probability 1-p.

11 Assessing Continuous Probabilities Apply the technique of assess individual probabilities and then use these to plot a rough CDF. The easiest way to use a continuous distribution in a decision tree or influence diagram is to approximate it with a discrete distribution.

12 Pitfalls: Heuristics and Biases Heuristics can be thought of as rules of thumb for accomplishing tasks. They are easy and intuitive ways to deal with uncertain situations It takes considerable practice before one is comfortable making probability assessments.

13 Heuristics and Biases Representatives: judge the probability that someone or something belongs to a particular category. Availability: judge the probability that an event will occur according to the ease with similar events from memory. Traffic accident and fire

14 Heuristics and Biases Motivational Bias: Incentives often exist that lead people to report probabilities that do not entirely reflect their true beliefs. Awareness of the heuristics and biases may help individuals make better probability assessments.

15 Experts and Probability Assessment In complex problems, expert risk assessment plays a major role in the decision-making process. The procedures for acquiring expert probability assessment has been established. Every assessment protocol should include the following steps: Background

16 Experts and Probability Background: The first important step Identification and recruitment of experts Motivating Experts Structuring and Decomposition, this step identifies specific variables for which judgments are needed. Probability-Assessment training

17 Experts and Probability Probability Elicitation and Verification, in this step the experts make the required probability assessment. As part of this process, an expert may provide detailed chains of reasoning for the assessments. Aggregation of Expert’s Probability Distribution

18 Subjective probability Constructing Distribution using RISKview Step 1 through 8

19 Chapter 8, Subjective Probability Summary Build model using subjective probability- assessment Continuous and discrete probability assessing Pitfalls and Heuristics Expert probability assessment