IDEAS home Printed from https://ideas.repec.org/p/exc/wpaper/2008-05.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2008-05.pdf
    File Function: First version, 2008
    Download Restriction: no
    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2009-05.pdf
    File Function: Revised version, 2009
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Yukalov, V.I., 2021. "A resolution of St. Petersburg paradox," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    3. 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.
    4. 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.
    5. Robert William, Vivian, 2013. "Ending the myth of the St Petersburg paradox," MPRA Paper 50515, University Library of Munich, Germany.
    6. Bronshtein, E. & Fatkhiev, O., 2018. "A Note on St. Petersburg Paradox," Journal of the New Economic Association, New Economic Association, vol. 38(2), pages 48-53.
    7. Kim Kaivanto & Eike Kroll, 2014. "Alternation bias and reduction in St. Petersburg gambles," Working Papers 65600286, Lancaster University Management School, Economics Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdellaoui, Mohammed & Bleichrodt, Han, 2007. "Eliciting Gul's theory of disappointment aversion by the tradeoff method," Journal of Economic Psychology, Elsevier, vol. 28(6), pages 631-645, December.
    2. Stephen G Dimmock & Roy Kouwenberg & Olivia S Mitchell & Kim Peijnenburg, 2021. "Household Portfolio Underdiversification and Probability Weighting: Evidence from the Field," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4524-4563.
    3. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2010. "Behavioral econometrics for psychologists," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 553-576, August.
    4. Wakker, Peter P. & Zank, Horst, 2002. "A simple preference foundation of cumulative prospect theory with power utility," European Economic Review, Elsevier, vol. 46(7), pages 1253-1271, July.
    5. Boonen, Tim J. & Tan, Ken Seng & Zhuang, Sheng Chao, 2016. "The role of a representative reinsurer in optimal reinsurance," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 196-204.
    6. Eyal Baharad & Doron Kliger, 2013. "Market failure in light of non-expected utility," Theory and Decision, Springer, vol. 75(4), pages 599-619, October.
    7. 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.
    8. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
    9. Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2009. "Parametric weighting functions," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1102-1118, May.
    10. Han Bleichrodt & Jose Luis Pinto, 2000. "A Parameter-Free Elicitation of the Probability Weighting Function in Medical Decision Analysis," Management Science, INFORMS, vol. 46(11), pages 1485-1496, November.
    11. Pavlo Blavatskyy, 2018. "A second-generation disappointment aversion theory of decision making under risk," Theory and Decision, Springer, vol. 84(1), pages 29-60, January.
    12. Martín Egozcue & Luis Fuentes García & Ričardas Zitikis, 2023. "The Slicing Method: Determining Insensitivity Regions of Probability Weighting Functions," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1369-1402, April.
    13. James Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2013. "Is there a plausible theory for decision under risk? A dual calibration critique," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 305-333, October.
    14. Steffen Andersen & James C. Cox & Glenn W. Harrison & Morten Lau & Elisabet E. Rutstroem & Vjollca Sadiraj, 2011. "Asset Integration and Attitudes to Risk: Theory and Evidence," Working Papers 2011_10, Durham University Business School.
    15. Shaw, W. Douglass & Woodward, Richard T., 2008. "Why environmental and resource economists should care about non-expected utility models," Resource and Energy Economics, Elsevier, vol. 30(1), pages 66-89, January.
    16. Pavlo R. Blavatskyy & Ganna Pogrebna, 2010. "Models of stochastic choice and decision theories: why both are important for analyzing decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 963-986.
    17. Jan V. Hansen & Rasmus H. Jacobsen & Morten I. Lau, 2016. "Willingness To Pay For Insurance In Denmark," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 49-76, January.
    18. Drew Fudenberg & Wayne Gao & Annie Liang, 2020. "How Flexible is that Functional Form? Quantifying the Restrictiveness of Theories," Papers 2007.09213, arXiv.org, revised Aug 2023.
    19. Jakusch, Sven Thorsten, 2017. "On the applicability of maximum likelihood methods: From experimental to financial data," SAFE Working Paper Series 148, Leibniz Institute for Financial Research SAFE, revised 2017.
    20. Epper, Thomas & Fehr-Duda, Helga, 2017. "A Tale of Two Tails: On the Coexistence of Overweighting and Underweighting of Rare Extreme Events," Economics Working Paper Series 1705, University of St. Gallen, School of Economics and Political Science.

    More about this item

    Keywords

    St. Petersburg paradox; expected value theory; experiment;
    All these keywords.

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:exc:wpaper:2008-05. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: J. Todd Swarthout (email available below). General contact details of provider: https://edirc.repec.org/data/exgsuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.