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Is the Allais paradox due to appeal of certainty or aversion to zero?

Published online by Cambridge University Press:  14 March 2025

Elif Incekara-Hafalir Open the ORCID record for Elif Incekara-Hafalir [Opens in a new window] ,
Eungsik Kim Open the ORCID record for Eungsik Kim [Opens in a new window]  and
Jack D. Stecher Open the ORCID record for Jack D. Stecher [Opens in a new window]
Elif Incekara-Hafalir*
Affiliation:
University of Technology Sydney, City Campus, Haymarket Dr Chau Chak Wing Building 8, Lv 9, Rm 012, Po Box 123, Broadway, Sydney NSW 2007, Australia
Eungsik Kim*
Affiliation:
University of Kansas, Snow Hall 339, 1460 Jayhawk Blvd, Lawrence Lawrence, KS, USA
Jack D. Stecher*
Affiliation:
University of Alberta, 340J Business Building, Edmonton, AB T6G 2R6, Canada
*
elif.incekarahafalir@uts.edu.au
eungsikk@ku.edu
stecher@ualberta.ca
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Abstract

We provide a novel but intuitive explanation for expected utility violations found in the Allais paradox: individuals are commonly averse to receiving nothing. We call this phenomenon the zero effect. Our laboratory experiments show support for the zero effect. By contrast, the evidence for the certainty effect is weak to nonexistent.

Keywords

Allais paradoxCertainty effectCommon consequenceCommon ratioDecision theoryZero effect

Information

Type
Original Paper
Information
Experimental Economics , Volume 24 , Issue 3 , September 2021 , pp. 751 - 771
Copyright
Copyright © 2020 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-020-09678-4) contains supplementary material, which is available to authorized users.

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Online Appendix: Is the Allais Paradox Due to Appeal of Certainty or Aversion to Zero?
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