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Allais paradox

A paradox of decision making that usually elicits responses inconsistent with expected utility theory. First, a choice is made between A $500,000 with ...

Allais paradox

Allais paradox   Quick reference

A Dictionary of Economics (5 ed.)

Reference type:
Subject Reference
Current Version:
2017
Subject:
Social sciences, Economics
Length:
182 words

...Allais paradox An example of choice under uncertainty where the outcome for most experimental subjects violates the axioms of expected utility theory. In the first experiment subjects are requested to choose between winning £1 million for sure and a gamble in which the prizes are £1 million with probability 0.89, £5 million with probability 0.10, and nothing with probability 0.01. Most experimental subjects would choose the option of £1 million for sure. In the second experiment the choice is between two different gambles. For the first gamble the prizes are...

Allais paradox

Allais paradox   Quick reference

A Dictionary of Philosophy (3 ed.)

Reference type:
Subject Reference
Current Version:
2016
Subject:
Philosophy
Length:
255 words
Illustration(s):
3

...is reversed. Although the paradox can be used to attack the sure thing principle , another approach is to use it to educate choices, so that if one genuinely prefers gamble 1 to gamble 2, one learns to reverse the initial feeling that gamble 4 is a better choice than gamble 3. http://www.sfb504.uni-mannheim.de/glossary/allais.htm An account of the paradox’s theoretical context, with links to related issues http://cepa.newschool.edu/het/essays/uncert/choiceref.htm A bibliography of scholarly articles on the paradox and related...

Allais paradox

Allais paradox n.   Quick reference

A Dictionary of Psychology (4 ed.)

Reference type:
Subject Reference
Current Version:
2015
Subject:
Science and technology, Psychology, Medicine and health, Psychiatry
Length:
271 words
Illustration(s):
2

...) + .01 u ( 0 ) , a contradiction, showing that expected utility theory does not accurately describe human choice behaviour. See also revealed preference , risk aversion . Compare common ratio effect , Ellsberg paradox , modified Ellsberg paradox , St Petersburg paradox . [Named after the French economist Maurice (Félix Charles) Allais ( 1911–2010 ) who formulated it in 1953...

Allais paradox

Allais paradox  

A paradox of decision making that usually elicits responses inconsistent with expected utility theory. First, a choice is made betweenA $500,000 with probability 1 (certainty)B $2,500,000, $500,000, ...
Maurice Allais

Maurice Allais  

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Overview Page
(1911 –2010) A French economist best known for the Allais paradox, which illustrates how people weigh risks and benefits in the decision-making process.He has also published widely in general ...
subjective expected utility theory

subjective expected utility theory  

A theory of decision making according to which a decision maker chooses an alternative or strategy (2) that maximizes subjective expected utility. It was introduced by the US decision theorist ...
risk aversion

risk aversion  

A widespread characteristic of human preferences, first discussed in 1738 by the Swiss mathematician and physicist Daniel Bernoulli (1700–82), according to which most people tend to value gains ...
St Petersburg paradox

St Petersburg paradox  

A paradox of decision making first presented to the St Petersburg Academy in 1738 by the Swiss mathematician and physicist Daniel Bernoulli (1700–82). A coin is tossed; if it falls heads then the ...
Ellsberg paradox

Ellsberg paradox  

A paradox of choice that usually elicits responses inconsistent with expected utility theory. Two urns are filled with red and green balls. Urn A contains 50 red balls and 50 green balls randomly ...
expected utility theory

expected utility theory  

A theory of decision making, formalized in 1947 by the Hungarian-born US mathematician John von Neumann (1903–57) and the German-born US economist Oskar Morgenstern (1902–77), according to which a ...
modified Ellsberg paradox

modified Ellsberg paradox  

A version of the Ellsberg paradox in which the failure of expected utility theory and of subjective expected utility theory is especially clear. Two urns are each filled with white, red, and green ...
common ratio effect

common ratio effect  

A famous violation of expected utility theory that seems intuitively appealing to many human decision makers, a typical example being as follows. An urn contains 100 chips numbered 1 to 100. First, ...
paradox

paradox  

Reference type:
Overview Page
Subject:
Philosophy
n. (in family therapy) a surprising interpretation or suggestion made in the course of therapy in order to demonstrate the relationship between a psychological symptom and a system of family ...
revealed preference

revealed preference  

A preference inferred from observations of a decision maker's actual choices. The notion was introduced in 1931 by the English philosopher, mathematician, and economist Frank (Plumpton) Ramsey ...
sure-thing principle

sure-thing principle  

A precept, first enunciated and named by the US decision theorist Leonard J(immie) Savage (1917–71) in his book The Foundations of Statistics (1954), according to which, if an alternative A is judged ...
utility theory

utility theory  

A class of theory concerned with the behaviours, strategies, and mental processes adopted by individuals faced with making a risky choice or decision. Utility is usually taken as the subjective value ...
anomaly

anomaly  

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Overview Page
An opportunity for abnormal returns in financial markets. If markets are efficient there should be no anomalies (see efficient markets hypothesis), and the assumption that this will indeed be the ...
decision-making

decision-making  

Reference type:
Overview Page
The process of acting upon the best information available in order to determine the most appropriate course of action.
decision theory

decision theory  

A normative (1) approach to decision making based on expected utility theory, some versions also incorporating Bayesian inference. It starts from the assumption that, for any pair of alternatives, ...
paradox

paradox n.   Quick reference

A Dictionary of Psychology (4 ed.)

Reference type:
Subject Reference
Current Version:
2015

..., the liar paradox , or Grelling's paradox . The term is also used more loosely for any argument that yields a surprising conclusion, or even for a fact or phenomenon that seems surprising, but the latter is avoided in careful usage. See also Allais paradox , Aubert–Fleischl paradox , barber's paradox , Condorcet's paradox , duration estimation paradox , Ellsberg paradox , Fechner's paradox , Gödel's theorem , Goodman's paradox , melodic paradox , metalanguage , mirror reversal problem , modified Ellsberg paradox , Monty Hall problem , ...

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