OK, I’ll end by just summarizing that my position is that we have probability theory, and we have decision theory, and together they let us decide what to do. They work together. So for the wager you describe above, I get probability 1⁄2 for Heads (since it’s a fair coin), and because of that, I decide to pay anything less than $0.50 to play. If I thought that the probability of heads was 0.4, I would not pay anything over $0.20 to play. You make the right decision if you correctly assign probabilities and then correctly apply decision theory. You might also make the right decision if you do both of these things incorrectly (your mistakes might cancel out), but that’s not a reliable method. And you might also make the right decision by just intuiting what it is. That’s fine if you happen to have good intuition, but since we often don’t, we have probability theory and decision theory to help us out.
One of the big ways probability and decision theory help is by separating the estimation of probabilities from their use to make decisions. We can use the same probabilities for many decisions, and indeed we can think about probabilities before we have any decision to make that they will be useful for. But if you entirely decouple probability from decision-making, then there is no longer any basis for saying that one probability is right and another is wrong—the exercise becomes pointless. The meaningful justification for a probability assignment is that it gives the right answer to all decision problems when decision theory is correctly applied.
As your example illustrates, correct application of decision theory does not always lead to you betting at odds that are naively obtained from probabilities. For the Sleeping Beauty problem, correctly applying decision theory leads to the right decisions in all betting scenarios when Beauty thinks the probability of Heads is 1⁄3, but not when she thinks it is 1⁄2.
[ Note that, as I explain in my top-level answer in this post, Beauty is an actual person. Actual people do not have identical experiences on different days, regardless of whether their memory has been erased. I suspect that the contrary assumption is lurking in the background of your thinking that somehow a “reference class” is of relevance. ]
OK, I’ll end by just summarizing that my position is that we have probability theory, and we have decision theory, and together they let us decide what to do. They work together. So for the wager you describe above, I get probability 1⁄2 for Heads (since it’s a fair coin), and because of that, I decide to pay anything less than $0.50 to play. If I thought that the probability of heads was 0.4, I would not pay anything over $0.20 to play. You make the right decision if you correctly assign probabilities and then correctly apply decision theory. You might also make the right decision if you do both of these things incorrectly (your mistakes might cancel out), but that’s not a reliable method. And you might also make the right decision by just intuiting what it is. That’s fine if you happen to have good intuition, but since we often don’t, we have probability theory and decision theory to help us out.
One of the big ways probability and decision theory help is by separating the estimation of probabilities from their use to make decisions. We can use the same probabilities for many decisions, and indeed we can think about probabilities before we have any decision to make that they will be useful for. But if you entirely decouple probability from decision-making, then there is no longer any basis for saying that one probability is right and another is wrong—the exercise becomes pointless. The meaningful justification for a probability assignment is that it gives the right answer to all decision problems when decision theory is correctly applied.
As your example illustrates, correct application of decision theory does not always lead to you betting at odds that are naively obtained from probabilities. For the Sleeping Beauty problem, correctly applying decision theory leads to the right decisions in all betting scenarios when Beauty thinks the probability of Heads is 1⁄3, but not when she thinks it is 1⁄2.
[ Note that, as I explain in my top-level answer in this post, Beauty is an actual person. Actual people do not have identical experiences on different days, regardless of whether their memory has been erased. I suspect that the contrary assumption is lurking in the background of your thinking that somehow a “reference class” is of relevance. ]