Daniel Bernoulli was the first one to provide a solution to the St.Petersburg paradox in the eighteenth century.Identify this solution.
A)Individuals' expectation of the amount of expected wealth depends upon their risk attitudes.Risk seekers have the highest expectations.
B)Individuals do not look at the expected wealth when they bid a lottery price, but the actual wealth of the lottery is the key.
C)Individuals do not look at the expected wealth when they bid a lottery price, but the expected utility of the lottery is the key.
D)Individuals do not look at the expected utility when they bid a lottery price, but the expected wealth of the lottery is the key.
E)Individuals do not look at the expected utility when they bid a lottery price, but the actual wealth of the lottery is the key.

Question

Quizplus · Accepted Answer

Daniel Bernoulli's solution to the St. Petersburg paradox suggested that individuals base their decisions not on the expected monetary value of a lottery, but on the expected utility derived from the wealth, which accounts for diminishing marginal utility of wealth.

Daniel Bernoulli Was the First One to Provide a Solution