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Is there a fair price in St. Petersburg repeated games? An empirical analysis

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  • Ruggero Paladini

Abstract

Can the Foley value (n+2.53) be considered a fair price? It is possible to give a positive answer, even if one has to depart to some extent from the classic St. Petersburg game. The only way to put player and dealer in an equal position is to compare the median of an MC simulation of N games with the Foley value. The difference should be, apart from exceptional cases, of the order of one monetary unit or less. Of course this difference has to be multiplied by N in favour of the winning side, so that higher N implies greater win and risk. The departure from the original game of St. Petersburg therefore takes place in two steps: the first step consists in playing not a single game but several ones; the second in repeating the same number of games with the MC technique and checking the median value with respect to the Foley value. In this way the odds of player and dealer would be balanced; the value of the unit stake would depend on their love for risk.

Suggested Citation

  • Ruggero Paladini, 2020. "Is there a fair price in St. Petersburg repeated games? An empirical analysis," Public Finance Research Papers 44, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.
    • Handle: RePEc:gfe:pfrp00:0044
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    References listed on IDEAS

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    2. Ruggero Paladini, 2017. "Il paradosso di S. Pietroburgo, una rassegna," Public Finance Research Papers 29, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.
    3. Robert William, Vivian, 2013. "Ending the myth of the St Petersburg paradox," MPRA Paper 50515, University Library of Munich, Germany.
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    Keywords

    Business taxation; State aid control; Multinational enterprises;
    All these keywords.

    JEL classification:

    • H - Public Economics
    • H - Public Economics
    • K - Law and Economics

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