Reply To: General Solution to St. Petersburg Paradox


The standard way to model risk aversion mathematically is to have DMU from additional amounts of money (or wealth). For example, if your utility from wealth is U = SQRT(W), then you would be risk averse. Note that you would get more utility from a certain $1000 in wealth, rather than a 50% chance of $500 and a 50% chance of $1500, if we assume you act to maximize the expectation of utility.

If you want to see more on this, the Wikipedia article is a good place to start: