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The St. Petersburg Paradox Despite Risk-seeking Preferences: An Experimental Study

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  • James C. Cox
  • Eike B. Kroll
  • Marcel Lichters
  • Vjollca Sadiraj
  • Bodo Vogt

Abstract

The St. Petersburg Paradox is one of the oldest challenges of expected value theory. Thus far, explanations of the paradox aim at small probabilities being perceived as zero and the boundedness of utility of the outcome. This paper provides experimental results showing that neither diminishing marginal utility of the outcome nor perception of small probabilities can explain the paradox. We find that even in situations where subjects are risk-seeking, and zeroing-out small probabilities supports risktaking, the St. Petersburg Paradox exists. This indicates that the paradox cannot be resolved by the arguments advanced to date.

Suggested Citation

  • James C. Cox & Eike B. Kroll & Marcel Lichters & Vjollca Sadiraj & Bodo Vogt, 2018. "The St. Petersburg Paradox Despite Risk-seeking Preferences: An Experimental Study," Experimental Economics Center Working Paper Series 2018-02, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2018-02
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    3. Daniel Muller & Tshilidzi Marwala, 2019. "Relative Net Utility and the Saint Petersburg Paradox," Papers 1910.09544, arXiv.org, revised May 2020.

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    More about this item

    Keywords

    expected utility; risk preferences; gains; losses; St. Petersburg;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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