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The allais paradox: A framing perspective
Author(s) -
Bierman Harold
Publication year - 1989
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.3830340104
Subject(s) - framing effect , framing (construction) , illusion , axiom independence , prospect theory , axiom , mathematical economics , expected utility hypothesis , perspective (graphical) , psychology , social psychology , positive economics , economics , cognitive psychology , mathematics , computer science , microeconomics , artificial intelligence , geography , geometry , archaeology , persuasion
The issue we want to resolve is whether or not the independence axiom of Savage (1954) is systematically violated by subjects in an Allais Paradox type of choice situation. The results of an experiment involving the Allais Paradox is presented. As with all Allais Paradox experiments the subjects were presented with choices involving hypothetical outcomes. It is concluded that the fault is not in utility theory but rather in the ability of research subjects to analyze complex probability problems without assistance, and that the framing of the problem heavily influences choices. Just as we are susceptible to optical illusions we are also susceptible to mental illusions. One can obtain a wide range of outcomes using the Allais Paradox depending on how the choices are framed.