Journal
AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
Volume 14, Issue 1, Pages 143-163Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/mic.20190153
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Funding
- French government (Labex Entreprendre) [ANR-10-Labex-11-01]
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The Allais Paradox is a behavioral regularity in individual decision-making under risk. However, it is a fragile empirical finding that can be influenced by experimental conditions.
The Allais Paradox, or the common consequence effect, is a well-known behavioral regularity in individual decision-making under risk. Data from 81 experiments reported in 29 studies reveal that the Allais Paradox is a fragile empirical finding. The Allais Paradox is likely to be observed in experiments with high hypothetical payoffs, the medium outcome being close to the highest outcome and when lotteries are presented as a probability distribution (not in a compound form). The Allais Paradox is likely to be reversed in experiments when the probability mass is equally split between the lowest and highest outcomes in risky lotteries.
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