Robert W Vivian. Resolving the St Petersburg Paradox - a Triumph for Austrian Economics

Austrian economics favours ordinal utility over cardinal utility which was ushered in by Daniel Bernoulli as a solution to the St Petersburg Paradox. Since it appeared to provide a solution to what appears to be an insoluble problem, cardinal utilities place in economics became assured. Von Neumann and Morgenstern elevated Cardinal Utility to be part of mainstream economics. However, the St Petersburg game is presented as a game in isolation. Once presented as part of a competitive market spilled by profit maximising firms to utility maximising gamblers matters change. It is them clear not only that cardinal utility is unnecessary, but that it also produces the wrong answer. Resolving the St Petersburg paradox via the competitive market is a triumph for Austrian Economics.

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