## What is 'Objective Probability'

Objective probability is the probability that an event will occur based an analysis in which each measure is based on a recorded observation or a long history of collected data. The concept of subjective probability can be contrasted with the idea subjective estimate. Objective probabilities are a more accurate way to determine the probability of a given outcome than subjective measurements. An objective probability will examine past data and use mathematical equations involving the data to determine the likelihood of an independent event occurring. An independent event is an event whose outcome is not influenced by prior events. Subjective probability, by contrast, may utilize some method of data analysis, but is largely based on a person's estimate or intuition about a situation and the likely outcome.

Next Up

## BREAKING DOWN 'Objective Probability'

Objective probability allows the observer to gain insight from historical data to gain insight of the likelihood of a given outcome. In contrast, subjective probability allows for the observer to gain insight by referencing things they have learned and their own experience.

## Example of Objective Probability

For example, one could determine the objective probability that a coin will land "heads" up by flipping it 100 times and recording each observation. This would yield an observation that the coin landed on "heads" approximately 50% of the time. This is an example of objective probability. An example of subjective probability is when a person who is educated about weather patterns examines things such as barometric pressure, wind shear, ocean temperature, and predicts the likelihood that a hurricane will head in a certain direction.

When performing any statistical analysis, it is important for each observation to be an independent event that has not been subject to manipulation. The less biased each observation is, the less biased the end probability will be.

RELATED TERMS
1. ### Prior Probability

The probability that an event will reflect established beliefs ...
2. ### Empirical Probability

Empirical probability uses the number of occurrences of an outcome ...
3. ### Posterior Probability

Posterior probability is the revised probability of an event ...
4. ### Probability Distribution

A statistical function that describes all the possible values ...
5. ### Binomial Distribution

A probability distribution that summarizes the likelihood that ...
6. ### Addition Rule For Probabilities

The addition rule for probabilities is the probability for either ...
Related Articles
1. Investing

### Financial Forecasting: The Bayesian Method

This method can help refine probability estimates using an intuitive process.
2. Investing

### Scenario Analysis Provides Glimpse Of Portfolio Potential

This statistical method estimates how far a stock might fall in a worst-case scenario.
3. Investing

### Multivariate Models: The Monte Carlo Analysis

This decision-making tool integrates the idea that every decision has an impact on overall risk.
4. Investing

### What Are The Odds Of Scoring A Winning Trade?

Just because you're on a winning streak doesn't mean you're a skilled trader. Find out why.
5. Investing

### Redefining Investor Risk

Changing the way you think about time and risk can change the way you invest.
6. Insurance

### Why Your Medicare Patient Status Matters

If you or a loved one are covered by Medicare and require a hospital stay, be sure to clarify whether you are inpatient, outpatient or under observation.
7. Investing

### Warren Buffett's Probability Analysis is His Key to Success

Warren Buffett didn't get rich through luck. His shrewd acumen when picking investments is based on thorough research and careful attention to probability.
8. Investing

### Behavioral Bias: Cognitive Versus Emotional Bias in Investing

We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect on investing decisions.
Hot Definitions
1. ### Return On Equity - ROE

The profitability returned in direct relation to shareholders' investments is called the return on equity.
2. ### Working Capital

Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
3. ### Bond

A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
4. ### Compound Annual Growth Rate - CAGR

The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
5. ### Net Present Value - NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
6. ### Price-Earnings Ratio - P/E Ratio

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
{"found_math": false, "script_math_tex": 0, "script_math_asciimath": 0, "math_annotations": 0, "math_alttext": 0, "mathml": 0, "mathjax_tag": 0, "mathjax_inline_tex": 0, "mathjax_display_tex": 0, "mathjax_asciimath": 0, "img_math": 0, "codecogs_latex": 0, "wp_latex": 0, "mimetex.cgi": 0, "/images/math/codecogs": 0, "mathtex.cgi": 0, "katex": 0, "math-container": 0, "wp-katex-eq": 0, "align": 0, "equation": 0, "x-ck12": 0, "texerror": 0, "url": "https://www.investopedia.com/terms/o/objective-probability.asp", "fetch_time": 1527450003000000000, "content_mime_type": "text/html", "warc_filename": "crawl-data/CC-MAIN-2018-22/segments/1526794870082.90/warc/CC-MAIN-20180527190420-20180527210420-00481.warc.gz", "warc_record_offset": 755791405, "warc_record_length": 78318, "token_count": 944, "char_count": 4962, "score": 4.125, "int_score": 4, "crawl": "CC-MAIN-2018-22", "snapshot_type": "longest", "language": "en", "language_score": 0.9407622814178467, "file_path": "/sailhome/yjruan/project/latent-lm/data/processed/finemath-4plus/finemath-4plus/train-00007-of-00064.parquet"}