St. Petersburg paradox
Quick Summary
The St. Petersburg paradox is a famous problem in probability theory that highlights a discrepancy between the expected value of a gamble and the amount people are willing to pay for it.1
The paradox involves a game where a coin is tossed until it lands on heads. The payoff is (2^n), where n is the number of tosses. For example, if heads appears on the first toss, the payoff is (2^1 = )2. If it takes two tosses (tails, then heads), the payoff is (2^2 = )4, and so on.
Mathematically, the expected value of this gamble is infinite. This is calculated by summing the product of each possible payoff and its probability: (1/2) * $2 + (1/4
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