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On the Empirical Relevance of St.Petersburg Lotteries

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  • James C. Cox
  • Vjollca Sadiraj
  • Bodo Vogt

Abstract

Expected value theory has been known for centuries to be subject to critique by St. Petersburg paradox arguments. And there is a traditional rebuttal of the critique that denies the empirical relevance of the paradox because of its apparent dependence on existence of credible offers to pay unbounded sums of money. Neither critique nor rebuttal focus on the question with empirical relevance: Do people make choices in bounded St. Petersburg games that are consistent with expected value theory? This paper reports an experiment that addresses that question.

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File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2008-05.pdf
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File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2009-05.pdf
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Bibliographic Info

Paper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2008-05.

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Length: 8
Date of creation: Dec 2008
Date of revision: Jan 2009
Handle: RePEc:exc:wpaper:2008-05

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Keywords: St. Petersburg paradox; expected value theory; experiment;

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References

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  1. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  2. Marc Rieger & Mei Wang, 2006. "Cumulative prospect theory and the St. Petersburg paradox," Economic Theory, Springer, vol. 28(3), pages 665-679, 08.
  3. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
  4. 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.
  5. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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Cited by:
  1. Robert William, Vivian, 2013. "Ending the myth of the St Petersburg paradox," MPRA Paper 50515, University Library of Munich, Germany.
  2. Tibor Neugebauer, 2010. "Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence," LSF Research Working Paper Series 10-14, Luxembourg School of Finance, University of Luxembourg.
  3. 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.

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