The St. Petersburg Paradox illustrates that, despite the theoretical infinite potential payout of a coin flip game, most individuals are only willing to pay a limited entry fee due to inherent behavioral biases. The paradox continues to challenge traditional economic theories, as it highlights humans' psychological view of money, where its utility increases logarithmically and not linearly, as proposed by Daniel Bernoulli. This phenomenon raises questions about our value perception and decision-making, especially in high-stakes environments.
Most of us cap off at around 20 dollars, the daring ones at 50 maybe, and the outliers? Probably not more than 100 dollars, I'd bet.
The expected value is (1/2)(2) + (1/4)(4) + (1/8)(8) + ............ ∞, showing the infinite potential of the game.
In the modern world, where we all race behind the highest-paying tech jobs, why does this 300-year-old riddle still have such an unexplainable hold over us?
According to the famous Mr. Bernoulli: The utility of money increases logarithmically, not linearly, fundamentally changing how money is viewed.
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