Allais for the Poor: Relations to Ability, Information Processing and Risk Attitudes

Tabea Herrmann, Olaf Hübler, Lukas Menkhoff and Ulrich Schmidt

No 1645, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper complements evidence on the Allais paradox from advanced countries and educated people by a novel investigation in a poor rural area. The share of Allais-type behavior is indeed high and related to characteristics of “lacking ability”, such as poor education, unemployment, and little financial sophistication. Based on prospective reference theory, we extend these characteristics by biased processing of probabilistic information. Finally, we reveal that Allais-type behavior is linked to risk-related characteristics, such as risk tolerance and optimism. This indicates a potential problem as exactly the more dynamic among the poor tend to make inconsistent decisions under uncertainty.

Keywords: Field experiments; Allais paradox; socio-demographic characteristics; prospective reference theory; first order stochastic dominance; risk attitude; optimism (search for similar items in EconPapers)
JEL-codes: D3 D81 O10 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2017
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.553408.de/dp1645.pdf (application/pdf)

Related works:
Journal Article: Allais for the poor: Relations to ability, information processing, and risk attitudes (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1645

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().