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280 Methods for eliciting probabilities
Figure 10.1 – A probability wheel
White
Pointer
Black
in Chapter 4. For example, odds of 25 to 1 against the occurrence of an
event are equivalent to a probability of 1/26 or 0.038.
The probability wheel
A probability wheel is a device like that shown in Figure 10.1, and it
consists of a disk with two different colored sectors, whose size can be
adjusted, and a fixed pointer. To see how the device might be used, let
us suppose that a manager needs to assess the probability that a rival
will launch a competing product within the next week. We could adjust
the wheel so that the white sector takes up 80% of its area and ask her to
choose between the following two hypothetical gambles:
Bet One: If the rival launches the product within the next week you
will win $100 000. If the rival does not launch the product you will
win nothing.
Bet Two: If, after spinning the wheel once, the pointer is in the white
sector you will win $100 000. If it is pointing toward the black sector you
will win nothing.
If the manager says that she would choose Bet Two then this implies
that she thinks that the probability of the rival launching the product
in the next week is less than 80%. The size of the white sector could
then be reduced and the question posed again. Eventually, the manager
should reach a point where she is indifferent between the two bets.
If this is achieved when the white sector takes up 30% of the wheel’s
area, this clearly implies that she estimates that the required probability
is 0.3.
Note that the use of the probability wheel allowed an assessment
to be made without directly asking the manager to state the probability.
It is therefore an example of an indirect assessment method.