The So-Called Allais Paradox and Rational Decisions under Uncertainty

Allais, Maurice

doi:10.1007/978-94-015-7629-1_17

Cited by 175 publications

(77 citation statements)

References 70 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The use of a form analogous to the standard one for delay discounting (viz., v Disc = v Nom f(p)) persists despite the many paradoxes that arise from such computations of expected value and expected utility (Allais, 1979;Harless & Camerer, 1994;Schoemaker, 1982;Segal, 1987).…”

mentioning

confidence: 99%

The arithmetic of discounting

Killeen

2014

J Exper Analysis Behavior

View full text Add to dashboard Cite

Most current models of delay discounting multiply the nominal value of a good whose receipt is delayed, by a discount factor that is some function of that delay. This article reviews the logic of a theory that discounts the utility of delayed goods by adding the utility of the good to the disutility of the delay. In limiting cases it approaches other familiar models, such as hyperbolic discounting. In nonlimit cases it makes different predictions, generally requiring, inter alia, a magnitude effect when the value of goods is varied. A different theory is proposed for conditioning experiments. In it utility is computed as the average reinforcing strength of the stimuli that signal the delay. Both theories are extended to experiments in which degree of preference is measured, rather than adjustment to iso‐utility values.

show abstract

mentioning

confidence: 99%

The arithmetic of discounting

Killeen

2014

J Exper Analysis Behavior

View full text Add to dashboard Cite

show abstract

“…Even more damaging for the EU hypothesis, Allais's results for the case of risky consequences were then supplemented by Ellsberg (1961) for the case when risk was combined with uncertainty. 4 These and later examples due to Allais (1979), Kahneman and Tversky (1979) and others were all used to question not only the descriptive accuracy but also the prescriptive relevance of the EU model. Indeed, these "paradoxes" ignited a fruitful debate over what rationality means, especially in the face of risk and uncertainty.…”

Section: Paradoxesmentioning

confidence: 99%

Rationality and Dynamic Consistency Under Risk and Uncertainty

Hammond

Zank

2014

Handbook of the Economics of Risk and Uncertainty

View full text Add to dashboard Cite

For choice with deterministic consequences, the standard rationality hypothesis is ordinality -i.e., maximization of a weak preference ordering. For choice under risk (resp. uncertainty), preferences are assumed to be represented by the objectively (resp. subjectively) expected value of a von NeumannMorgenstern utility function. For choice under risk, this implies a key independence axiom; under uncertainty, it implies some version of Savage's sure thing principle. This chapter investigates the extent to which ordinality, independence, and the sure thing principle can be derived from more fundamental axioms concerning behaviour in decision trees. Following Cubitt (1996), these principles include dynamic consistency, separability, and reduction of sequential choice, which can be derived in turn from one consequentialist hypothesis applied to continuation subtrees as well as entire decision trees. Examples of behavior violating these principles are also reviewed, as are possible explanations of why such violations are often observed in experiments.

show abstract

“…The "common consequence effect,"which includes the Allais Paradox [2, p. 891 as a special case, and which has been observed by Allais [3] [46], Raiffa [54], and Slavic and Tversky [67].…”

Section: Conclusion:~nduced Vs Observed Violations Of the Independencmentioning

confidence: 99%