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The St. Petersburg paradox despite risk-seeking preferences: an experimental study

Author

Listed:
  • James C. Cox

    (Georgia State University)

  • Eike B. Kroll

    (Otto-von-Guericke-University Magdeburg, Empirical Economics)

  • Marcel Lichters

    (Otto-von-Guericke-University Magdeburg, Empirical Economics)

  • Vjollca Sadiraj

    (Georgia State University)

  • Bodo Vogt

    (Otto-von-Guericke-University Magdeburg, Empirical Economics)

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 risk-taking, 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, 2019. "The St. Petersburg paradox despite risk-seeking preferences: an experimental study," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 27-44, April.
    • Handle: RePEc:spr:busres:v:12:y:2019:i:1:d:10.1007_s40685-018-0078-y
    DOI: 10.1007/s40685-018-0078-y
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    Cited by:

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    3. Jonathan Reese & Ana Sofia Santos & Tomás A. Palma & Magda Sofia Roberto, 2023. "Triggering competence may protect multiple minority members from hiring discrimination," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.

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    More about this item

    Keywords

    Decision-making under risk; St. Petersburg paradox; Risk-aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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