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The St. Petersburg Paradox despite risk-seeking preferences: An experimental study

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  • Eike B. Kroll

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Bodo Vogt

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

The St. Petersburg is one of the oldest violations of expected utility theory. Thus far, explanations of the paradox aim at small probabili- ties being perceived as zero and the boundedness of utility. This paper provides experimental results showing that neither risk attitudes nor perception of small probabilities explain the paradox. We nd that even in situations where subjects are risk-seeking, the St. Petersburg Paradox exists. This indicates that the paradox lies at the very core of human decision-making processes and cannot be explained by the parameters discussed in previous research so far.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2009_Dateien/2009_04.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09004.

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Length: 6 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:mag:wpaper:09004

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References

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  1. 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.
  2. Grether, David M. & Plott, Charles R., . "Economic Theory of Choice and the Preference Reversal Phenomenon," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 152, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. James C. Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2007. "Is There A Plausible Theory for Risky Decisions?," Experimental Economics Center Working Paper Series, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University 2007-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Apr 2008.
  4. Henry S. Farber, 2008. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," American Economic Review, American Economic Association, American Economic Association, vol. 98(3), pages 1069-82, June.
  5. Shapley, Lloyd S., 1977. "The St. Petersburg paradox: A con games?," Journal of Economic Theory, Elsevier, Elsevier, vol. 14(2), pages 439-442, April.
  6. Samuelson, Paul A, 1977. "St. Petersburg Paradoxes: Defanged, Dissected, and Historically Described," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 15(1), pages 24-55, March.
  7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
  8. Eike B. Kroll & Bodo Vogt, 2008. "Loss Aversion for time: An experimental investigation of time preferences," FEMM Working Papers, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management 08027, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  9. Brito, D. L., 1975. "Becker's theory of the allocation of time and the St. Petersburg Paradox," Journal of Economic Theory, Elsevier, Elsevier, vol. 10(1), pages 123-126, February.
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Cited by:
  1. Tibor Neugebauer, 2010. "Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence," LSF Research Working Paper Series, Luxembourg School of Finance, University of Luxembourg 10-14, Luxembourg School of Finance, University of Luxembourg.
  2. Tibor Neugebauer & Stefan Traub, 2012. "Public good and private good valuation for waiting time reduction: a laboratory study," Social Choice and Welfare, Springer, Springer, vol. 39(1), pages 35-57, June.

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