The Elicitation of Subjective Probabilities: A Laboratory Study in an Accounting Context

Subjective probabilities provide a concept of probability that has theoretical and practical support, and one that can deal with situations where relative frequency probabilities are unavailable. Savage describes the general nature of subjective probabilities as follows: A subjectivist ". . . view holds that probability measures the confidence that a particular individual has in the truth of a particular proposition, for example, the proposition that it will rain tomorrow."' The subjectivity of the response is the sacrifice that is made to deal with the single event case and the empirical induction problem that present difficulties for the relative frequency concept of probability. Accountants have proposed the application of subjective probabilities to a variety of accounting and auditing problems, including the measurement of depreciation,2 and audit sample evaluation.3 Although the need for subjective prior, subjective likelihood, and subjective posterior probabilities is recognized, evidence could not be found in the accounting litera-