Two envelopes problem Here's another analysis that only refers to credences , i.e subjective probabilities referring to the mental state of a believing agent - as opposed to physical probabilities referring to the physical tendencies of "mind-independent" reality.
According to this interpretation of the paradox, the paradox is only psychological and concerns the mental state of an agent who derives contradictory credence assignments that conflict with his understanding of his mental state. So this interpretation isn't adequately analysed by appealing to a physical model.
Suppose the participant called Bob, before opening either envelope, tells himself that he knows absolutely nothing regarding the smallest quantity of dollars S that has been inserted into one of the two envelopes:
Before opening either envelope, Bob reasons that since he knows absolutely nothing about the value of S, that he should appeal to Laplace's principle of indifference (PoI) by assigning equal credence to any of the permissible values for S. He justifies this to himself by arguing that if he truly knows nothing about the value for S, then he doesn't even know the currency denominations that is used to describe S. So he assigns
P(S = s) = P(S = 2s) = P(S = 3s) = P(S = 4s) ..... for every positive number s.
There is only one "distribution" satisfying those constraints, namely the constant function P(S) = c ,
that cannot be normalised, where c is any positive number which can therefore be set to c = 1. This is called an 'improper prior', and it's use often results in conflicting credence estimates, as shown by other paradoxes, such as Bertrand's Paradox.
Having chosen this so-called "prior", Bob reasons that when conditioned on the unknown quantity S, the unknown quantity X in his unopened envelope has the value S with a subjective probability p, else the value 2S with subjective probability (1 - p):
P(X | S) = p Ind (X,S) + (1- p) Ind (X, 2S) (where Ind is the indicator function)
He again appeals to PoI and assigns p = 1/2 (which merely a non-informative proper prior)
Substituting his choices for P(S) and p, Bob realises that the unnormalised joint distribution P(S,X) describing his joint credences for S and X is
P (S , X) is proportional to 0. 5 Ind (X ,S) + 0.5 Ind (X , 2S)
Summing over S, he derives his credences for X, namely P(X) that he realises is also an improper prior.
P(X) is proportional to 1
Consequently, his subjective 'unnormalized' posterior distribution (which does in fact sum to 1, but is nevertheless the ratio of the two unnormalised distributions P(S,X) and P(X) ) is described by
P (S | X) 'is proportioanal to' 0. 5 Ind (X ,S) + 0.5 Ind (X , 2S)
Bob wonders what would happen if he were to naively compute expectations over this 'unnormalised' distribution. He decides to compute the implied expectation value for the unopened envelope V conditioned on the value of his unopened envelope:
P (V = 2x | X = x ) = P(S = x | X = x) = 0.5
P(V = 0.5 x | X = x) = 1 - P(S = x | X = x) = 0.5
E [V | X ] = 5/4 X
Bob decides that he cannot accept this expectation value, because it contradicts his earlier credences that are totally agnostic with regards to the states of S and X. However, Bob also knows that this conditional expectation value is a fallacious value, due to the fact that his subjective probability distribution P(S | X) isn't really normalised, in the sense of it being the ratio of two unnormalised distributions P(S,X) and P(X).
Bob therefore knows how to avoid the paradox, without needing to revise his earlier credences.
Crucially, Bob realises that his 'unnormalised' subjective distribution P(S | X) should only be used when calculating ratios of P(S | X) .
So instead of strongly concluding that E [ V | X ] = 5/4 X that involved averaging with respect to an unnormalised posterior distribution P(S | X), he reasons more weakly to only conclude
P(V= 2x | X = x) / P( V = 0.5x | X = x) = 1
Which merely states that his credences for V=2X and V=0.5X should be the same.
So if Bob is mad enough to reason with subjective probability distributions (which IMO should never be used in science, and which can be avoided even when discussing credences by using imprecise probabilities), Bob can nevertheless avoid self-contradiction without revising his earlier credences, simply by recognising the distinction between legitimate and non-legitimate expectation values.