Two-Envelope Paradox

People with the kind of preferences that give rise to the St. Petersburg paradox are problematic---but not because there is anything wrong with infinite utilities. Rather, such people cannot assign the St. Petersburg gamble any value that any kind of outcome could possibly have. Their preferences also violate an infinitary generalization of Savage's Sure Thing Principle, which we call the *Countable Sure Thing Principle*, as well as an infinitary generalization of von Neumann and Morgenstern's Independence axiom, which we call *Countable (...) Independence*. In violating these principles, they display foibles like those of people who deviate from standard expected utility theory in more mundane cases: they choose dominated strategies, pay to avoid information, and reject expert advice. We precisely characterize the preference relations that satisfy Countable Independence in several equivalent ways: a structural constraint on preferences, a representation theorem, and the principle we began with, that every prospect has a value that some outcome could have. (shrink)

Using “brute reason” I will show why there can be only one valid interpretation of probability. The valid interpretation turns out to be a further refinement of Popper’s Propensity interpretation of probability. Via some famous probability puzzles and new thought experiments I will show how all other interpretations of probability fail, in particular the Bayesian interpretations, while these puzzles do not present any difficulties for the interpretation proposed here. In addition, the new interpretation casts doubt on some concepts often taken (...) as basic and unproblematic, like rationality, utility and expectation. This in turn has implications for decision theory, economic theory and the philosophy of physics. (shrink)

There has been much discussion on the two-envelope paradox. Clark and Shackel (2000) have proposed a solution to the paradox, which has been refuted by Meacham and Weisberg (2003). Surprisingly, however, the literature still contains no axiomatic justification for the claim that one should be indifferent between the two envelopes before opening one of them. According to Meacham and Weisberg, "decision theory does not rank swapping against sticking [before opening any envelope]" (p. 686). To fill this gap in the literature, (...) we present a simple axiomatic justification for indifference, avoiding any expectation reasoning, which is often considered problematic in infinite cases. Although the two-envelope paradox assumes an expectation-maximizing agent, we show that analogous paradoxes arise for agents using different decision principles such as maximin and maximax, and that our justification for indifference before opening applies here too. (shrink)

1Department of Philosophy, University of Nottingham, University Park, Nottingham NG7 2RD, UK. [email protected] of Philosophy, University of Nottingham, University Park, Nottingham NG7 2RD, UK. [email protected].

Clark and Shackel have recently argued that previous attempts to resolve the two-envelope paradox fail, and that we must look to symmetries of the relevant expected-value calculations for a solution. Clark and Shackel also argue for a novel solution to the peeking case, a variant of the two-envelope scenario in which you are allowed to look in your envelope before deciding whether or not to swap. Whatever the merits of these solutions, they go beyond accepted decision theory, even contradicting it (...) in the peeking case. Thus if we are to take their solutions seriously, we must understand Clark and Shackel to be proposing a revision of standard decision theory. Understood as such, we will argue, their proposal is both implausible and unnecessary. (shrink)

Previous claims to have resolved the two-envelope paradox have been premature. The paradoxical argument has been exposed as manifestly fallacious if there is an upper limit to the amount of money that may be put in an envelope; but the paradoxical cases which can be described if this limitation is removed do not involve mathematical error, nor can they be explained away in terms of the strangeness of infinity. Only by taking account of the partial sums of the infinite series (...) of expected gains can the paradox be resolved. (shrink)

This paper discusses the finite version of the two envelope paradox. (That is, we treat the paradox against the background assumption that there is only a finite amount of money in the world.).