What does the St Petersburg Paradox show?
The St. Petersburg paradox is a situation where a naive decision criterion which takes only the expected value into account predicts a course of action that presumably no actual person would be willing to take.
How much should you pay for St Petersburg Paradox?
The St. Petersburg Paradox. The ‘expected value’ of the game is the sum of the expected payoffs of all the consequences. Since the expected payoff of each possible consequence is $1, and there are an infinite number of them, this sum is an infinite number of dollars.
How do you solve the St Petersburg Paradox?
The paradox known as the St. Petersburg Paradox is obtained by a simple coin flip game. The rules are simple: keep flipping until you get tails. If your first flip is a tails, then you win $2; if your first tails is on the second flip, then you win $4; if your first tails is on the third flip, you win $8, etc.
What is the St Petersburg Paradox Why is it observed?
The famous Saint Petersburg Paradox (St. Petersburg Paradox) shows that the theory of expected value does not capture the real-world economics of decision- making problems. It discusses the necessary conditions that the utility function has to conform to avoid the paradox.
What is the infinite money paradox?
Starts here10:32The Infinite Money Paradox – YouTubeYouTube
How do you calculate expected utility?
You calculate expected utility using the same general formula that you use to calculate expected value. Instead of multiplying probabilities and dollar amounts, you multiply probabilities and utility amounts. That is, the expected utility (EU) of a gamble equals probability x amount of utiles. So EU(A)=80.
Is the Banach Tarski paradox real?
The strong form of the Banach–Tarski paradox is false in dimensions one and two, but Banach and Tarski showed that an analogous statement remains true if countably many subsets are allowed. Tarski proved that amenable groups are precisely those for which no paradoxical decompositions exist.
Which paradox involves a situation in which the choice with a lower probability of a desirable result can be argued to be the better choice?
The St. Petersburg paradox
The St. Petersburg paradox was introduced by Nicolaus Bernoulli in 1713. It continues to be a reliable source for new puzzles and insights in decision theory.
What is the difference between expected value and expected utility?
The expected value tells you what the average roll will be near. The expected utility tells you what that’s worth to you.
What is the distinction between expected wealth and expected utility?
Expected Utility vs. The expected utility of a reward or wealth decreases when a person is rich or has sufficient wealth. In such cases, a person may choose the safer option as opposed to a riskier one. For example, consider the case of a lottery ticket with expected winnings of $1 million.
What is the St Petersburg paradox in economics?
The St. Petersburg paradox or St. Petersburg lottery is a paradox related to probability and decision theory in economics. It is based on a theoretical lottery game that leads to a random variable with infinite expected value (i.e., infinite expected payoff) but nevertheless seems to be worth only a very small amount to the participants.
What is the difference between value stocks and growth stocks?
Growth stocks are considered stocks that have the potential to outperform the overall market over time because of their future potential, while value stocks are classified as stocks that are currently trading below what they are really worth and will therefore provide a superior return.
Does cumulative prospect theory restore the St Petersburg paradox?
Cumulative prospect theory is one popular generalization of expected utility theory that can predict many behavioral regularities ( Tversky & Kahneman 1992 ). However, the overweighting of small probability events introduced in cumulative prospect theory may restore the St. Petersburg paradox.
What are growth stocks and should you buy them?
Growth stocks tend to reflect companies with records of higher earnings and faster growth. Growth stock companies may pay a dividend, but they tend to reinvest their earnings back into the company reflecting their expectations of continued growth.
https://www.youtube.com/watch?v=jrUbJNTOEg4