Four Paradoxes of the St. Petersburg Game: A Bank That Cannot Go Bankrupt and a Fifth Paradox. Part 2

Let me recall the game. Peter tosses a coin until it lands heads. If heads comes up on the first toss, Peter pays Paul 1 ducat, on the second 2, on the third 4, and every further toss doubles the payout. The average of this game is infinite, yet no reasonable person will pay twenty ducats for it. That is the first of the four paradoxes from the first part.
The last of the four was about Peter rather than Paul. To run the game, Peter has to promise any payout: heads on the 41st toss, for example, means more than a trillion ducats, 17 times all the gold ever mined. In 1977 the American mathematician Lloyd Shapley titled a paper about this as a question: «The St. Petersburg Paradox: A Con Game?»
Can the St. Petersburg game be run honestly? Nobody can honestly promise an unlimited payout, but Peter can promise a share of the bank instead of a sum: then the promise never exceeds what the bank holds, and the bank does not go bankrupt. We will go step by step through how this works and what happens to each paradox, starting with the fourth: it gives us the bank on which the other sections are built. A fifth paradox will appear along the way.
















