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Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence

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  • Tibor Neugebauer

    () (Luxembourg School of Finance, University of Luxembourg)

Abstract

The Petersburg paradox has led to much thought for three centuries. This paper describes the paradox, discusses its resolutions advanced in the literature while alluding to the historical context, and presents experimental data. In particular, Bernoulli’s search for the level of moral impossibility in the Petersburg problem is stressed; beyond this level small probabilities are considered too unlikely to be relevant for judgment and decision making. In the experiment, the level of moral impossibility is elicited through variations of the gamble-length in the Petersburg gamble. Bernoulli’s conjecture that people neglect small probability events is supported by a statistical power analysis.

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Bibliographic Info

Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 10-14.

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Date of creation: 2010
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Handle: RePEc:crf:wpaper:10-14

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Related research

Keywords: Petersburg paradox; economic history; bounded rationality; significance level; experimental economics;

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References

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  1. Sinn, Hans-Werner, 1980. "Ökonomische Entscheidungen bei Ungewißheit," Monograph, Mohr Siebeck, Tübingen, edition 1, number urn:isbn:9783169427024, Jan-Jun.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. James C. Cox & Vjollca Sadiraj & Bodo Vogt, 2009. "On the empirical relevance of st. petersburg lotteries," Economics Bulletin, AccessEcon, vol. 29(1), pages 214-220.
  4. James C. Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2007. "Is There A Plausible Theory for Risky Decisions?," Experimental Economics Center Working Paper Series 2007-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Apr 2008.
  5. Ulrich Schmidt & Stefan Traub, 2009. "An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries," Theory and Decision, Springer, vol. 66(3), pages 229-262, March.
  6. James C. Cox & Vjollca Sadiraj, 2008. "Risky Decisions in the Large and in the Small: Theory and Experiment," Experimental Economics Center Working Paper Series 2008-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  7. Kaivanto, Kim, 2008. "Alternation Bias and the Parameterization of Cumulative Prospect Theory," EconStor Open Access Articles, ZBW - German National Library of Economics.
  8. Tibor Neugebauer & John Hey & Carmen Pasca, 2010. "Georges-Louis Leclerc de Buffon’s‘Essays on Moral Arithmetic’," LSF Research Working Paper Series 10-06, Luxembourg School of Finance, University of Luxembourg.
  9. Eike B. Kroll & Bodo Vogt, 2009. "The St. Petersburg Paradox despite risk-seeking preferences: An experimental study," FEMM Working Papers 09004, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  10. Schmidt, Ulrich & Traub, Stefan, 2002. " An Experimental Test of Loss Aversion," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 233-49, November.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Ignoring Small Chances
    by Robin Hanson in Overcoming Bias on 2011-07-01 20:00:09
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Cited by:
  1. Tibor Neugebauer & John Hey & Carmen Pasca, 2010. "Georges-Louis Leclerc de Buffon’s‘Essays on Moral Arithmetic’," LSF Research Working Paper Series 10-06, Luxembourg School of Finance, University of Luxembourg.
  2. Riedl Arno, 2012. ": Experimental Economics: Economic and Game Theoretic Principles in Experimental Research in the Social Sciences," Research Memoranda 001, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
  3. Seidl, Christian, 2012. "The Petersburg Paradox at 300," Economics Working Papers 2012-10, Christian-Albrechts-University of Kiel, Department of Economics.

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