The heart of Bernoulli's solution to the Saint Petersburg paradox is
A) Convexity of the utility function.
B) Violation of transitivity of preferences.
C) Violation of the independence axiom.
D) Risk aversion.

Question

Quizplus · Accepted Answer

Bernoulli's solution to the Saint Petersburg paradox involves the concept of diminishing marginal utility, which is a characteristic of risk aversion. This implies that people value each additional unit of wealth less than the previous one, leading them to prefer certain outcomes over uncertain ones with the same expected value.

The Heart of Bernoulli's Solution to the Saint Petersburg Paradox