Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism

Allais paradox pdf

Learning in the Allais paradox

Whereas both the Allais paradox, the first empirical challenge of the classical rationality assumptions, and learning have been the focus of many experimental investigations, no experimental study exists today into learning in the pure context of the Allais paradox. This paper presents such a study. We find that choices converge to expected utility maximization if subjects are given the opportu...

Self Control, Risk Aversion, and the Allais Paradox

This paper develops a dual-self model that is compatible with modern dynamic macroeconomic theory and evidence, and shows how it leads to a wide range of behavioral anomalies concerning risk, including the Allais paradox. We calibrate the model to obtain a quantitative fit, by extending the simpler “nightclub” model of Fudenberg and Levine [2006] by introducing consumption commitment. We find t...

Choice under Uncertainty; ‘Allais Paradox’ and its Paradoxical Implication

Human attitude towards risk is mixed. However, looking at the persuasive argument of diminishing marginal utility of wealth, academia has adopted risk aversion as the norm. Inculcating risk aversion, expected utility hypothesis (EUH) is used to rank risky options. ‘Allais paradox’ contradicted EUH but promoted the conviction of risk aversion intuitively on the basis of certainty effect. Most of...

Another Statistical Paradox

We show that a single binomial observation carries absolutely no evidential value for discriminating the null hypothesis θ = 1/2 from a broad class of alternative hypotheses that allow θ to be between 0 and 1. In contrast, interval estimation methods suggest that a single binomial observation does provide some evidence against the null hypothesis. The resolution of this paradox requires the ins...