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From the St. Petersburg paradox to the dismal theorem

Published online by Cambridge University Press:  08 May 2020

Susumu Cato*
Affiliation:
Institute of Social Science, The University of Tokyo, Tokyo, Japan
*
*Corresponding author. E-mail: [email protected]

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.

Type
Research Article
Copyright
Copyright © The Author(s) 2020. Published by Cambridge University Press

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