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On the consistency of preferences in allais' paradox
Author(s) -
Morrison Donald G.
Publication year - 1967
Publication title -
behavioral science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.371
H-Index - 45
eISSN - 1099-1743
pISSN - 0005-7940
DOI - 10.1002/bs.3830120503
Subject(s) - consistency (knowledge bases) , subject (documents) , mathematical economics , asset (computer security) , set (abstract data type) , point (geometry) , position (finance) , mathematics , economics , computer science , artificial intelligence , geometry , computer security , finance , library science , programming language
The problem to be studied in this paper is the consistency of a subject's choice when making a decision in two different situations. If he is placed in one set of circumstances, he must choose between two highly desirable lotteries. If the other situation prevails, he must make a similar type of decision between two much less desirable lotteries. Conditions for consistency in the two preferences are developed. It is then shown that the typical subject violates at least one of these conditions. The problem is then examined from a somewhat different point of view, and this new formulation shows that the typical response that subjects make can indeed be “consistent.” The “solution” to the paradox is based on the consideration of the subject's initial asset position.