Allais paradox

Maurice Allais
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
Alternate versions available: 1987 Edition
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Abstract

The ‘Allais paradox’ is that risk-averse persons’ choices between alternatives tend to vary according to the absolute amounts of potential gain involved in different pairs of alternatives, even though rational choice between alternatives should depend only on how the alternatives differ. But there is no paradox once we accept the non-identity of monetary and psychological values and the importance of the distribution of cardinal utility about its average value.
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How to cite this article

Allais, Maurice. "Allais paradox." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 02 September 2010 <http://www.dictionaryofeconomics.com/article?id=pde2008_A000074> doi:10.1057/9780230226203.0032

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Table of Contents

  • Abstract
  • Keywords
  • Article
    • The St Petersburg paradox and the Bernoullian formulation
    • The neo-Bernoullian formulation
    • The Allais paradox
    • Empirical research
    • The Allais paradox, a simple illustration of Allais's general theory of random choice
    • From The St Petersburg paradox to the Allais paradox
  • See Also
  • Bibliography
  • How to cite this article
 
 

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