The harmonic sequence paradox reconsidered
AbstractAccording to the harmonic sequence paradox (Blavatskyy 2006), an expected utility decision maker's willingness to pay for a gamble whose expected payoffs evolve according to the harmonic series is finite if and only if his marginal utility of additional income becomes eventually zero. Since the assumption of zero marginal utility is implausible, expected utility theory (as well as cumulative prospect theory) does apparently do a bad job in describing this decision behaviour. The present note demonstrates that the harmonic sequence paradox only applies to time-patient but not to time-impatient (risk-neutral) expected utility decision makers.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 161.
Length: 10 pages
Date of creation: 2010
Date of revision:
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St. Petersburg Paradox; Expected Utility; Time-Preferences;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-13 (All new papers)
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