Framing the Allais paradox as a daily farm decision problem: tests and explanations

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...

Similarity and Decision-making under Risk (Is There a Utility Theory Resolution to the Allais Paradox?)

It is argued that the Allais paradox reveals a certain property of the decision scheme we use to determine the preference of one lottery over another. The decision scheme is based on the use of similarity relations on the probability and prize spaces. It is proved that for every pair of similarity relations there is essentially only one preference consistent with the decision scheme and the sim...

Certain and Uncertain Utility: The Allais Paradox and Five Decision Theory Phenomena∗

In the study of decision making under risk, preferences are assumed to be continuous. We present a model of discontinuous preferences over certain and uncertain outcomes. Using existing parameter estimates for certain and uncertain utility, five important decision theory phenomena are discussed: the certainty effect, experimentally observed probability weighting, the uncertainty effect, extreme...

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...