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A history of the Allais paradox

  • FLORIS HEUKELOM (a1)
Abstract
Abstract

This article documents the history of the Allais paradox, and shows that underneath the many discussions of the various protagonists lay different, irreconcilable epistemological positions. Savage, like his mentor von Neumann and similar to economist Friedman, worked from an epistemology of generalized characterizations. Allais, on the other hand, like economists Samuelson and Baumol, started from an epistemology of exact descriptions in which every axiom was an empirical claim that could be refuted directly by observations. As a result, the two sides failed to find a common ground. Only a few decades later was the now so-called Allais paradox rediscovered as an important precursor when a new behavioural economic subdiscipline started to adopt the epistemology of exact descriptions and its accompanying falsifications of rational choice theory.

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Maurice Allais , ‘Le comportement de l'homme rationnel devant de le risque: Critique des postulats et axioms de l’école americaine’, Econometrica (1953) 21, pp. 503546

Sophie Jallais , Pierre-Charles Pradier and David Teira , ‘Facts, norms and expected utility functions’, History of the Human Sciences (2008) 21(2), pp. 4562

Gilbert W. Basset , ‘The St. Petersburg paradox and bounded utility’, History of Political Economy (1987) 19, pp. 517523

Ward Edwards , ‘The theory of decision making’, Psychological Bulletin (1954) 51, pp. 380417

Lina Eriksson and Alan Hájek , ‘What are degrees of belief?’, Studia Logica (2007) 86, pp. 185215

Bruno de Finetti , ‘Le vrai et le probable’, Dialectica (1949) 3, pp. 7893

Mark J. Machina , ‘Expected utility analysis without the independent axiom’, Econometrica (1988) 50, pp. 277323

Marschak , ‘Rational behavior, uncertain prospects, and measurable utility’, Econometrica (1950) 18, pp. 111141

Ivan Moscati , ‘History of consumer demand theory, 1871–1971: a neo-Kantian rational reconstruction’, European Journal of the History of Economic Thought (2007) 14, pp. 119156

William J. Baumol , ‘The Neumann–Morgenstern utility index: an ordinalist view’, Journal of Political Economy (1951) 59, pp. 6166

Daniel Ellsberg , ‘Ambiguity, and the Savage axioms’, Quarterly Journal of Economics (1961) 75, pp. 643669

Daniel Kahneman and Amos Tversky , ‘Prospect theory: an analysis of decision under risk’, Econometrica (1979) 47, pp. 263292

Daniel Hausman , The Inexact and Separate Science of Economics, Cambridge: Cambridge University Press, 1992

William J. Baumol , ‘The cardinal utility which is ordinal’, Economic Journal (1958) 68, pp. 665672

Floris Heukelom , Behavioral Economics: A History, Cambridge: Cambridge University Press, 2014

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The British Journal for the History of Science
  • ISSN: 0007-0874
  • EISSN: 1474-001X
  • URL: /core/journals/british-journal-for-the-history-of-science
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