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

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  • Elif Incekara-Hafalir

    (University of Technology Sydney)

  • Eungsik Kim

    (University of Kansas)

  • Jack D. Stecher

    (University of Alberta)

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.

Suggested Citation

  • Elif Incekara-Hafalir & Eungsik Kim & Jack D. Stecher, 2021. "Is the Allais paradox due to appeal of certainty or aversion to zero?," Experimental Economics, Springer;Economic Science Association, vol. 24(3), pages 751-771, September.
    • Handle: RePEc:kap:expeco:v:24:y:2021:i:3:d:10.1007_s10683-020-09678-4
    DOI: 10.1007/s10683-020-09678-4
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    Cited by:

    1. Ostermair, Christoph, 2022. "An experimental investigation of the Allais paradox with subjective probabilities and correlated outcomes," Journal of Economic Psychology, Elsevier, vol. 93(C).

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