The Allais Paradox: What It Became, What It Really Was, What It Now Suggests to Us

Mongin, Philippe

doi:10.2139/ssrn.3214506

Cited by 8 publications

(7 citation statements)

References 73 publications

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“…The independence axiom asserts that adding a common outcome to two prospects should not change the preference ordering of the prospects. Perhaps the most notable behavioural anomaly is the Allais paradox (Mongin, 2019, for a recent review), or common consequence effect, which uncovers a violation of the independence assumption. Quiggin (1993, p. 30) writes: ‘The Allais problem is the pons asinorum of theories of choice under uncertainty.…”

Section: Expected Utility Theory and Its Alternativesmentioning

confidence: 99%

Fitness-Maximizers Employ Pessimistic Probability Weighting for Decisions Under Risk

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Jones

2020

Evolut. Hum. Sci.

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The standard theory of rationality posits that agents order preferences according to average utilities associated with different choices. Expected utility theory has repeatedly failed as a predictive theory, as reflected in a growing literature in behavioural economics. Evolutionary theorists have suggested that seemingly irrational behaviours in contemporary contexts may have once served important functions, but existing work linking fitness and choice has not adequately addressed the challenges of constructing an evolutionary theory of decision making. In particular, fitness itself is not a reasonable metric for decision making since its timescale exceeds the lifespan of the decision-maker. Consequently, organisms use proximate systems that work on appropriate timescales and are amenable to feedback and learning. We develop an evolutionary principal-agent model in which individuals utilize a set of proximal choice variables to account for the non-linear dependence of these variables on consumption. While this is insufficient to maximize fitness in the presence of environmental stochasticity, maximum fitness can be achieved by adopting pessimistic probability weightings compatible with the rank-dependent expected utility family of choice models. In particular, pessimistic probability weighting emerges naturally in an evolutionary framework because of extreme intolerance to zeros in multiplicative growth processes.

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Section: Expected Utility Theory and Its Alternativesmentioning

confidence: 99%

Fitness-Maximizers Employ Pessimistic Probability Weighting for Decisions Under Risk

Price

Jones

2020

Evolut. Hum. Sci.

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“…Nonetheless, many authors think of EUT models as being normatively adequate models telling us how we should make decisions (see, for instance, Bleichrodt et al 2001). In this regard, EUT models are frequently employed in order to guide decisions under risk (see Thoma 2019) or to overcome inconsistencies in our choice-behavior like, for instance, in the so-called Allais' paradox (see Mongin 2019). Hence-generally speaking-, EUT models are employed to derive verdicts that lend credence to certain courses of action.…”

Section: The Verdicts Of Normative Modelsmentioning

confidence: 99%

Normative Models and Their Success

Beck

Jahn

2020

Philosophy of the Social Sciences

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In this paper, we explore an under-investigated question concerning the class of formal models that aim at providing normative guidance. We call such models normative models. In particular, we examine the question of how normative models can successfully exert normative guidance. First, we highlight the absence of a discussion of this question—which is surprising given the extensive debate about the success conditions of descriptive models—and motivate its importance. Second, we introduce and discuss two potential accounts of the success conditions of normative models. Our tentative conclusion is that the second account is more promising.

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“…The large experimental literature spawned by his paradox has led many, even among specialists, to overlook the fact that he intended it as a normative argument against this theory. Mongin (2019) has stressed this underestimated facet of the paradox, and distinguished between a weak normative reading, to the effect that the (p1, q2) pair of choices cannot be dismissed as being irrational, while the VNM-abiding pairs cannot be dismissed on this ground either, and a strong normative reading, to the effect that for at least some individuals, (p1, q2) is the unique rational pair. Allais sketches two reasons for his resolution.…”

Section: The Redefinition Strategy In the Allais Paradoxmentioning

confidence: 99%

Expected utility theory, Jeffrey’s decision theory, and the paradoxes

Mongin

Baccelli

2020

Synthese

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In Richard Bradley's book, Decision Theory with a Human Face (2017), we have selected two themes for discussion. The first is the Bolker-Jeffrey (BJ) theory of decision, which the book uses throughout as a tool to reorganize the whole field of decision theory, and in particular to evaluate the extent to which expected utility (EU) theories may be normatively too demanding. The second theme is the redefinition strategy that can be used to defend EU theories against the Allais and Ellsberg paradoxes, a strategy that the book by and large endorses, and even develops in an original way concerning the Ellsberg paradox. We argue that the BJ theory is too specific to fulfil Bradley's foundational project and that the redefinition strategy fails in both the Allais and Ellsberg cases. Although we share Bradley's conclusion that EU theories do not state universal rationality requirements, we reach it not by a comparison with BJ theory, but by a comparison with the non-EU theories that the paradoxes have heuristically suggested.

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The Allais Paradox: What It Became, What It Really Was, What It Now Suggests to Us

Cited by 8 publications

References 73 publications

Fitness-Maximizers Employ Pessimistic Probability Weighting for Decisions Under Risk

Fitness-Maximizers Employ Pessimistic Probability Weighting for Decisions Under Risk

Normative Models and Their Success

Expected utility theory, Jeffrey’s decision theory, and the paradoxes

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