The term “exchange paradox” refers to a situation in which it appears to be advantageous for each of two holders of an envelope containing some amount of money to always exchange his or her envelope for that of the other individual, which they know contains either half or twice their own amount. We review several versions of the problem and show that resolving the paradox depends on the specifics of the situation, which must be disambiguated, and on the player's beliefs. (...) The latter psychological variables are part and parcel of the resolution. Assuming reasonable subjective distributions, exchanging cannot always be advantageous for both players. We suggest several deep-rooted psychological reasons for the considerable difficulty people demonstrably have in dealing with this problem. Implicit widespread and compelling assumptions—that affect judgement in diverse contexts—obstruct the solution. Analysing this paradox underscores the close connection between psychology and probability theory. (shrink)

You know that a two-child family has a son. What is the probability that the family has two sons? And what is this probability if you know that the family has a son born on a Tuesday? The former question has been widely discussed previously. The latter adds a new puzzling twist to the situation. In both cases the answer should depend on the specifics of the assumed underlying procedure by which the given information has been obtained. Quantitative analysis, assuming (...) one scenario, shows that the information on the son's day of birth changes the target probability. However, the relevance of being born on Tuesday to the question of the children's genders seems bizarre, since the same would be true for any other day. This apparent paradox is further probed in an attempt to alleviate the ensuing psychological difficulty. (shrink)