Proposed in the 18th century
, the paradox works like this: I will toss a coin until it comes up heads, at which point you get paid and the game ends. You get $1 if the coin comes up heads on the first toss, $2 if the coin comes up heads on the second, $4 if it is heads on the third, $8 on the fourth and so on. Your prospective payoff doubles with each successive flip until the coin finally lands on heads and the game is over.
Investors considering Facebook should think first about the St. Petersburg Paradox, the 18th-century mathematical riddle that helps explain why growth stocks can get overvalued so easily. Jason Zweig has details on The News Hub. Photo: Getty Images
How much would you pay to play? The paradox is that the potential payoff is infinite; after the first flip, you have a 50% chance of winning $2, plus a 25% chance of winning $4, plus a 12.5% chance of winning $8 and so forth. You will win $537 million if you get heads on the 30th toss; on the 50th, $563 trillion.
However, psychologists have found
, most people won't pay more than $20 or so for a chance to play the game. After all, you could get heads as early as the first toss, leaving you with only a $1 payoff and no chance to earn those giant later gains. With that risk of quick, sharp loss looming at the outset, the infinite value of playing the game feels finite to most people
PS Я читаю бумажную версию WSJ, как правило, за завтраком. Anyone else? )