What is the Allais paradox?
The Allais paradox is an observation that reveals a deviation from the axioms of expected utility theory. In essence, it demonstrates that when faced with choices between gambles, people do not always behave as predicted by theories assuming rational maximization of expected utility. I presented scenarios where individuals, when given two distinct pairs of lotteries, exhibit preferences that contradict the principle of independence, suggesting that the certainty effect plays a significant role in decision-making under risk.
Ask Maurice Allais the follow-up →