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The St. Petersburg paradox despite risk-seeking preferences: an experimental study

James Cox (), Eike B. Kroll, Marcel Lichters, Vjollca Sadiraj () and Bodo Vogt ()
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Eike B. Kroll: Otto-von-Guericke-University Magdeburg, Empirical Economics
Marcel Lichters: Otto-von-Guericke-University Magdeburg, Empirical Economics
Bodo Vogt: Otto-von-Guericke-University Magdeburg, Empirical Economics

Business Research, 2019, vol. 12, issue 1, No 3, 27-44

Abstract: Abstract The St. Petersburg paradox is one of the oldest challenges of expected value theory. Thus far, explanations of the paradox aim at small probabilities being perceived as zero and the boundedness of utility of the outcome. This paper provides experimental results showing that neither diminishing marginal utility of the outcome nor perception of small probabilities can explain the paradox. We find that even in situations where subjects are risk-seeking, and zeroing-out small probabilities supports risk-taking, the St. Petersburg paradox exists. This indicates that the paradox cannot be resolved by the arguments advanced to date.

Keywords: Decision-making under risk; St. Petersburg paradox; Risk-aversion (search for similar items in EconPapers)
JEL-codes: C91 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40685-018-0078-y

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