Does the Allais paradox survive with non-monetary consequences?

Danae Arroyos-Calvera, Andrea Isoni, Graham Loomes and Rebecca McDonald

Economics Letters, 2024, vol. 244, issue C

Abstract: The form of the Allais paradox known as the common ratio effect (CRE) is a violation of deterministic expected utility theory that has been widely replicated with monetary outcomes. Its robustness has stimulated the development of numerous alternative models of risky choice. However, much less is known about the prevalence of the CRE in decisions involving non-monetary outcomes. We conduct a controlled laboratory comparison of the CRE for money versus consumer goods. The CRE is very strong with money, but largely disappears for goods, primarily as a result of differences in risk attitudes between goods and money. We caution against assuming that findings from experiments involving monetary lotteries will reliably generalise to other types of consequences.

Keywords: Common ratio effect; Allais paradox; Consumer goods; Risk attitudes (search for similar items in EconPapers)
JEL-codes: C91 D81 D91 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524005184

DOI: 10.1016/j.econlet.2024.112034

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