On Second Order Probabilities and the Notion of Epistemic Risk

Abstract

Second or higher order probabilities have commonly been viewed with scepticism by those working within the realm of probability and decision theory. The aim of the present note is to show how the notion of second order probabilities can add to our understanding of judgmental and decision processes and how the traditional framework of Bayesian decision theory can be extended in a fruitful way by taking such entities into account. Section one consists of a brief account of arguments put forth against higher order probabilities as well as of counterarguments. In order to provide an example of the applicability of second order probabilities a decision theory encompassing such probabilities will be presented in section two. In section three I will try to emphasize the value of second order probabilities for a deeper and more complete understanding of the notion of risk.