Editing Expected utility hypothesis (section)

== The St. Petersburg paradox ==
The [[St. Petersburg Paradox|St. Petersburg paradox]] presented by [[Nicolas Bernoulli]] illustrates that decision-making based on the expected value of monetary payoffs leads to absurd conclusions.<ref name=":0">{{cite journal|vauthors=Aase KK|date=January 2001|title=On the St. Petersburg Paradox|journal=Scandinavian Actuarial Journal|language=en|volume=2001|issue=1|pages=69–78|doi=10.1080/034612301750077356|issn=0346-1238|s2cid=14750913}}</ref>  When a probability distribution function has an infinite [[expected value]], a person who only cares about expected values of a gamble would pay an arbitrarily large finite amount to take this gamble. However, this experiment demonstrated no upper bound on the potential rewards from very low probability events. In the hypothetical setup, a person flips a coin repeatedly. The number of consecutive times the coin lands on heads determines the participant's prize. The participant's prize is doubled every time it comes up heads (1/2 probability); it ends when the participant flips the coin and comes out in tails. A player who only cares about expected payoff value should be willing to pay any finite amount of money to play because this entry cost will always be less than the expected, infinite value of the game. However, in reality, people do not do this. "Only a few participants were willing to pay a maximum of $25 to enter the game because many were risk averse and unwilling to bet on a very small possibility at a very high price.<ref>{{cite encyclopedia | title = The St. Petersburg Paradox | url = https://stanford.library.sydney.edu.au/archives/sum2012/entries/paradox-stpetersburg/ | encyclopedia = Stanford Encyclopedia of Philosophy | date =  16 June 2008 | last1 = Martin | first1 = Robert }}</ref>