The Rules

# The Rules - The Rules of Actional Thought Why New Rules?...

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The Rules of Actional Thought

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Why New Rules? “They say that understanding ought to work by the  rules of right reason.  These rules are, or ought to be,  contained in logic: but the actual science of logic is  conversant at present only with things either certain,  impossible, or entirely doubtful, none of which  (fortunately) we have to reason on.  Therefore, the  true logic for this world is the calculus of  probabilities, which takes account of the magnitude of  the probability which is, or ought to be, in a  reasonable man’s mind.” James Clerk Maxwell (1831 - 1879)
The Probability Rule • The probability rule requires that you use  possibilities and probabilities to provide the  distinctions and information that  characterize deals. • We can think of a deal in principle as a  probability tree, perhaps with several  measures specified at the endpoints.

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The Probability Rule • What is the end result of applying the  probability rule? • How can you possibly violate the  probability rule? • Which legs of the stool are involved?
The Order Rule   • The order rule requires that you can arrange  prospects in a list in descending order of your  preference from best to worst. If you prefer  prospect A to prospect B (written A>B), then

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## This note was uploaded on 06/16/2010 for the course MS&E 252 taught by Professor Howard during the Fall '08 term at Stanford.

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The Rules - The Rules of Actional Thought Why New Rules?...

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