The puzzle is this: Suppose you are offered a gamble where you keep flipping a coin until it lands heads up. If you get tails on your first flip you win $2, on your second flip $4, and so forth, with the pot doubling each time. Your expected winnings are ½ x $2 + ¼ x $4 + 1/8 x $8 . . . The value of this sequence is infinite, so why won’t people pay a huge amount to play the bet? Bernoulli’s answer was to suppose that people get diminishing value from increases in their wealth, which yields risk aversion. A simpler solution is to note that there is only a finite amount of wealth in the world,
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