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Decision Making And Saint Petersburg Paradox: Focusing On Heuristic Parameters, Considering The Non-Ergodic Context And The Gambling Risks

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  • Antonio Cappiello

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Abstract

The Saint Petersburg Paradox is still a contemporary issue because of the great impact on the probabilistic theory and decision-making. This article proposes some hints on avoiding the trap of the infinite expected value (EV). The highly stochastic mechanism and its EV have always to be contextualized in the limited period where we take our choices taking into account all possible limitations deriving from the theory (including the non-ergodic features and some inappropriate consequences we may attribute to the EV). This contextualisation is one of the most important factors to consider especially when we deal with infinite quantity coming from models that may misrepresent our field of application and therefore generate paradoxes.

Suggested Citation

  • Antonio Cappiello, 2016. "Decision Making And Saint Petersburg Paradox: Focusing On Heuristic Parameters, Considering The Non-Ergodic Context And The Gambling Risks," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - Italian Review of Economics, Demography and Statistics, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 70(4), pages 147-158, October-D.
  • Handle: RePEc:ite:iteeco:160406
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    File URL: http://www.sieds.it/listing/RePEc/journl/2016LXX_N4_RIEDS_147_158_Cappiello.pdf
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    Keywords

    Saint Petersburg paradox; St. Petersburg; probability; decision-making; expected value; non-ergodic space; ergodicity; probability model; gambling; risks; game theory; risk assessment; utility function; martingale; dear or no deal; miljoenenjacht; affari tuoi; betting; learning from failure; Bernoulli; Buffon experiment;

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • B00 - Schools of Economic Thought and Methodology - - General - - - History of Economic Thought, Methodology, and Heterodox Approaches
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • I00 - Health, Education, and Welfare - - General - - - General
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
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    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-
    • Z00 - Other Special Topics - - General - - - General
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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