Is the Allais paradox due to appeal of certainty or aversion to zero?

Elif Incekara‐Hafalir · Eungsik Kim · Jack Douglas Stecher

12 citations0/0 files storedExperimental Economics

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Decision-Making and Behavioral Economics Economic and Environmental Valuation Experimental Behavioral Economics Studies

Abstract

Abstract We provide a novel but intuitive explanation for expected utility violations found in the Allais paradox: individuals are commonly averse to receiving nothing. We call this phenomenon the zero effect. Our laboratory experiments show support for the zero effect. By contrast, the evidence for the certainty effect is weak to nonexistent.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1953Le Comportement de l'Homme Rationnel devant le Risque: Critique des Postulats et Axiomes de l'Ecole Americaine 1999The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework 1982"Expected Utility" Analysis without the Independence Axiom 1999The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework \n 2010Prospect Theory 2010Prospect Theory: For Risk and Ambiguity

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