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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

No 2018-02, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

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 risktaking, the St. Petersburg Paradox exists. This indicates that the paradox cannot be resolved by the arguments advanced to date.

Keywords: expected utility; risk preferences; gains; losses; St. Petersburg (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: 22
Date: 2018-07
New Economics Papers: this item is included in nep-exp and nep-upt
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Journal Article: The St. Petersburg paradox despite risk-seeking preferences: an experimental study (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:exc:wpaper:2018-02

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