DECISION MAKING AND SAINT PETERSBURG PARADOX: FOCUSING ON HEURISTIC PARAMETERS, CONSIDERING THE NON-ERGODIC CONTEXT AND THE GAMBLING RISKS

Antonio Cappiello

RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, 2016, vol. 70, issue 4, 147-158

Abstract: The Saint Petersburg Paradox is still a contemporary issue because of the great impact on the probabilistic theory and decision-making. This article proposes some hints on avoiding the trap of the infinite expected value (EV). The highly stochastic mechanism and its EV have always to be contextualized in the limited period where we take our choices taking into account all possible limitations deriving from the theory (including the non-ergodic features and some inappropriate consequences we may attribute to the EV). This contextualisation is one of the most important factors to consider especially when we deal with infinite quantity coming from models that may misrepresent our field of application and therefore generate paradoxes.

Keywords: Saint Petersburg paradox; St. Petersburg; probability; decision-making; expected value; non-ergodic space; ergodicity; probability model; gambling; risks; game theory; risk assessment; utility function; martingale; dear or no deal; miljoenenjacht; affari tuoi; betting; learning from failure; Bernoulli; Buffon experiment (search for similar items in EconPapers)
JEL-codes: A11 A12 A13 A14 B00 B31 B40 C10 C13 C53 C69 C70 D04 D89 D90 F02 H11 I00 I28 J10 N00 N10 N13 N14 N43 N44 Z00 Z10 (search for similar items in EconPapers)
Date: 2016
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