Historical Example:The St. Petersburg Paradox

• Game:

  • You get to toss a fair coin for as many times as you need to score a “head” (H) (on toss n, n from 1 to infinity)

• Payoff:

  • You get $2 n

    • If you score H on toss 1, you get $2
    • If you score H on toss 2, you get $4
    • If you score H on toss 3, you get $8
    • If you score H on toss 4, you get $16, etc.

• Question:

  • How much are you willing to pay me in order to play this game for one round?
  • How do you decide???

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