Humans act because we are uncertain about the future. The physical sciences don’t allow us to see into the future when we are dealing with humans. Understanding probability is critical to understanding action. There are two types of probability—class and case. Although there are two types, that doesn’t turn humans into automatons or benign objects that react to a stimulus from a social engineer.
Physics has wreaked more havoc on the economics profession than any other. Some of the worst errors about economics are due to a misunderstanding of probability. It’s difficult to say what causes the most errors about economics, but probability is terribly flawed. Class probability is when we know the frequency within a group. Case probability refers to the chance of a particular event.
Class probability is when we know the chance of an entire group. We can place computer programmers into a class. We don’t know about a particular individual. An insurance company knows how many in this class will encounter certain events. They will pay a premium for medical insurance. They are unable to tell who will win and who will lose. The more people, the more accurate they can be, the law of large numbers.
Case probability is when we know the chance of an event. We can’t place a profession into a case. The chance of heads or tails is 50:50. If a coin flipped lands on heads 10 times in a row, the odds remain the same for the 11th flip. The same with red and black on a roulette wheel. The law of large numbers doesn’t exist in case probability. They are uninsurable. Just because certain things are called insurance doesn’t mean they are.
Understanding there are two different probabilities doesn’t mean the future can be predicted. Class probability is insurable, case is not. Insurance companies can only say how many in a particular class. Computer programmers and coal miners will be in different classes. You don’t even have to look at a mortality table to see who the winners will be. Resources would be pooled together, and it would be a redistribution from one class to another.
References
Ludwig von Mises; Human Action
Richard von Mises; Probability, Statistics, and Truth