The so-called St. Petersburg Paradox was a topic of debate among those
mathematicians involved in probability theory in the eighteenth century. The
paradox involves the following game between two players. Player \(A\) flips a
coin until a tail appears. If it appears on his first flip, player \(B\) pays
him 1 ruble. If it appears on the second flip, \(B\) pays 2 rubles, on the
third, 4 rubles, \(\ldots\), on the \(n\)th flip, \(2^{n-1}\) rubles. What amount
should \(A\) be willing to pay \(B\) for the privilege of playing? Show first that
\(A\) 's expectation, namely, the sum of the probabilities for each possible
outcome of the game multiplied by the payoff for each outcome, is
$$
\sum_{i=0}^{\infty} \frac{1}{2^{i}} 2^{i-1}
$$
and then that this sum is infinite. Next, play the game 10 times and calculate
the average payoff. What would you be willing to pay to play? Why does the
concept of expectation seem to break down in this instance?