The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Allais Paradox

  • Maurice Allais
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_93

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.

Keywords

Allais paradox Allais, M. Bernoulli, N. Cardinal utility de Finetti, B. Expectations Harsanyi, J. C. Independence Preferences Propensity for risk Psychological versus monetary value Random choice Psychology of risk Samuelson, P. A. Savage, L. J. St Petersburg paradox von Neumann and Morgenstern 

JEL Classifications

D81 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Maurice Allais
    • 1
  1. 1.