Is the Allais paradox due to appeal of certainty or aversion to zero?
Elif Incekara-Hafalir (),
Eungsik Kim () and
Jack Stecher ()
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Elif Incekara-Hafalir: University of Technology Sydney
Eungsik Kim: University of Kansas
Experimental Economics, 2021, vol. 24, issue 3, No 2, 771 pages
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 paradox; Certainty effect; Common consequence; Common ratio; Decision theory; Zero effect (search for similar items in EconPapers)
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