Informal evidence suggests that individuals are willing to pay only a finite and, typically, very low price for a specific lottery that converges to an infinite payment with probability one. The established decision theories (expected value, expected utility theory, cumulative prospect theory) cannot satisfactorily explain this low willingness to pay. The presented paradox strengthens the original and the super St. Petersburg paradox.
Keywords and Phrases: Expected value - EUT - Cumulative prospect theory - St. Petersburg paradox - Willingness to pay.
Received: 27 Spetember 2004, Revised: 15 January 2005, JEL Classification Numbers:
C91, D81.
I am grateful to Peter Wakker, whose suggestions helped to simplify significantly the exposition of the main idea, and to the participants of a brown-bag seminar at CERGE-EI (June 23, 2004, Prague), notably Dirk Engelmann and Andreas Ortmann, who suggested interesting testable explanations for the paradox.