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From the St. Petersburg paradox to the dismal theorem
Published online by Cambridge University Press: 08 May 2020
Abstract
This paper aims to consider the meaning of the dismal theorem, as presented by Martin Weitzman [(2009) On modeling and interpreting the economics of catastrophic climate change. Review of Economics and Statistics91, 1–19]. The theorem states that a standard cost–benefit analysis breaks down if there is a possibility of catastrophes occurring. This result has a significant influence on debates regarding the economics of climate change. In this study, we present an intuitive similarity between the dismal theorem and the St. Petersburg paradox using a simple discrete probability distribution.
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- Copyright © The Author(s) 2020. Published by Cambridge University Press
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