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On the Empirical Relevance of St.Petersburg Lotteries

Author

Listed:
  • 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.

Suggested Citation

  • James C. Cox & Vjollca Sadiraj & Bodo Vogt, 2008. "On the Empirical Relevance of St.Petersburg Lotteries," Experimental Economics Center Working Paper Series 2008-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Jan 2009.
  • Handle: RePEc:exc:wpaper:2008-05
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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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    References listed on IDEAS

    as
    1. Marc Rieger & Mei Wang, 2006. "Cumulative prospect theory and the St. Petersburg paradox," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 665-679, August.
    2. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    3. 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.
    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. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. 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.
    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. Robert William, Vivian, 2013. "Ending the myth of the St Petersburg paradox," MPRA Paper 50515, University Library of Munich, Germany.
    4. Kim Kaivanto & Eike Kroll, 2014. "Alternation bias and reduction in St. Petersburg gambles," Working Papers 65600286, Lancaster University Management School, Economics Department.

    More about this item

    Keywords

    St. Petersburg paradox; expected value theory; experiment;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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