Solving Daniel Bernoulli’s St Petersburg paradox: The paradox which is not and never was
It has been accepted for over 270 years that the expected monetary value (EMV) of the St Petersburg game is infinite. Accepting this leads to a paradox; no reasonable person is prepared to pay the predicted large sum to play the game but will only pay, comparatively speaking, a very moderate amount....
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| Format: | Article |
| Language: | English |
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AOSIS
2003-06-01
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| Series: | South African Journal of Economic and Management Sciences |
| Online Access: | https://sajems.org/index.php/sajems/article/view/3317 |
| Summary: | It has been accepted for over 270 years that the expected monetary value (EMV) of the St Petersburg game is infinite. Accepting this leads to a paradox; no reasonable person is prepared to pay the predicted large sum to play the game but will only pay, comparatively speaking, a very moderate amount. This paradox was ‘solved’ using cardinal utility. This article demonstrates that the EMV of the St Petersburg game is a function of the number of games played and is infinite only when an infinite number of games is played. Generally, the EMV is a very moderate amount, even when a large number of games is played. It is of the same order as people are prepared to offer to play the game. There is thus no paradox. Cardinal utility is not required to explain the behaviour of the reasonable person offering to play the game. |
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| ISSN: | 1015-8812 2222-3436 |