Investor Presentaiton
How much would a real player pay to play?
We cannot know for sure. The game cannot be played in practice.
▷ But when Cox et al. (2011) offered a finite version of the
St. Petersburg game-i.e. when players were offered the opportunity
to pay $8.75 to play for a maximum of 9 rounds-83% declined.
n.b. There is less than a 0.5 percent chance of getting to round 9.
▷ Since the expected winnings of this game are $9, this suggests most
players do not base their decisions on the expected value.
▷ Most players are risk averse. i.e. Even though they would make
money on average, they do not want to risk the money they have.
More important than resolving the St. Petersburg Paradox,
Bernoulli's insight helped changed our interpretation of data.
▷ Decision theory, regression models, and many other statistical tools
work by maximizing utility (or an approach similar to maximizing
utility like minimizing loss or regret).View entire presentation