Bet on the ratio of the length

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Reference no: EM131834868

A stick is broken at random into two pieces. You bet on the ratio of the length of the longer piece to the length of the smaller piece. You receive $k if the ratio is between k and k + 1 for some 1 ≤ k ≤ m - 1, while you receive $m if the ratio is larger than m. Here m is a given positive integer. Using computer simulation, verify that your expected payoff is approximately equal to $2[ln(m + 1) - 0.4228 + 2/(m + 1)]. Do you see a resemblance with the St. Petersburg paradox?

Reference no: EM131834868

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