What is the St. Petersburg paradox?

The St. Petersburg paradox or St. Petersburg lottery is a paradox related to probability and decision theory in economics. It is based on a particular (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. read more

Learn about the St. Petersburg paradox and why simply relying upon the expected value in this situation leads to a conclusion no rational person would make. Learn about the St. Petersburg paradox and why simply relying upon the expected value in this situation leads to a conclusion no rational person would make. read more

That's the St. Petersburg paradox: for this game with infinite expected value, very few people will pay more than $5 or so. The paradox can be explained using the concepts of diminishing marginal utility (the first dollar is more useful than the second dollar is more useful than the third dollar, etc.) and loss aversion (losing is worse than winning is good). read more