A resolution of the St. Petersburg paradox is presented. In contrast to the standard resolution, utility is not required. Instead, the time-average performance of the lottery is computed. The final result can be phrased mathematically identically to Daniel Bernoulli's resolution, which uses logarithmic utility, but is derived using a conceptually different argument. The advantage of the time resolution is the elimination of arbitrary utility functions.
Philosophical Transactions of the Royal Society of London Series A
- Pub Date:
- December 2011
- Mathematics - Probability;
- Condensed Matter - Statistical Mechanics;
- Quantitative Finance - Risk Management
- 20 pages, 1 figure