The St. Petersburg paradox: an experimental solution

Sergio Da Silva and Raul Matsushita

MPRA Paper from University Library of Munich, Germany

Abstract: The St. Petersburg paradox refers to a gamble of infinite expected value, where people are likely to spend only a small entrance fee for it. There is a huge volume of literature that mostly concentrates on the psychophysics of the game; experiments are scant. Here, rather than focusing on the psychophysics, we offer an experimental, “physical” solution as if robots played the game. After examining the time series formed by one billion plays, we: confirm that there is no characteristic scale for this game; explicitly formulate the implied power law; and identify the type of -stable distribution associated with the game. We find an and, thus, the underlying distribution of the game is a Cauchy flight, as hinted by Paul Samuelson.

Keywords: St. Petersburg paradox; alpha-stable distributions; Cauchy flight; power laws (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth and nep-hpe
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Published in Physica A 445.4(2016): pp. 66-74

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Journal Article: The St. Petersburg paradox: An experimental solution (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68075

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