The von Neumann-Morgenstern axioms were an attempt to characterize rational decision-making in the presence of risk. The von Neumann-Morgenstern utility theorem says that if someone is vNM-rational, i.e. their preferences obey the axioms, then there exists a function $u$ from the set of outcomes to the real numbers, such that they will have to maximize […]

I suspect that there is a mistake in the Wikipedia article on the St Petersburg paradox, and I would like to see if I am right before modifying the article. In the section “Solving the paradox”, the formula for computing of the expected utility of the lottery for a log utility function is given to […]

The game works as such: I flip a fair coin until it lands on tails. $h$ is the number of heads obtained until the first tail occurs and the game stops. My payoff from this game is: $\hat G=2^{h}$ I have a utility function $u(W)=\ln(W)$ and $W=1000000$ in initial wealth. I want to find the […]

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