%0 Journal Article
%T Paradox-Proof Utility Functions for Heavy-Tailed Payoffs: Two Instructive Two-Envelope Problems
%A Michael R. Powers
%J Risks
%P 26-34
%D 2015
%I MDPI AG
%R 10.3390/risks3010026
%X We identify restrictions on a decision maker¡¯s utility function that are both necessary and sufficient to preserve dominance reasoning in each of two versions of the Two-Envelope Paradox (TEP). For the classical TEP, the utility function must satisfy a certain recurrence inequality. For the St. Petersburg TEP, the utility function must be bounded above asymptotically by a power function, which can be tightened to a constant. By determining the weakest conditions for dominance reasoning to hold, the article settles an open question in the research literature. Remarkably, neither constant-bounded utility nor finite expected utility is necessary for resolving the classical TEP; instead, finite expected utility is both necessary and sufficient for resolving the St. Petersburg TEP.
%K two-envelope paradox
%K dominance reasoning
%K von Neumann¨CMorgenstern utility
%K heavy-tailed payoffs
%K boundedness
%U http://www.mdpi.com/2227-9091/3/1/26