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The Allais paradox is a choice problem designed by Maurice Allais () to show an inconsistency of actual observed choices with the predictions of expected utility theory. . The Allais paradox demonstrates that individuals rarely make rational decisions consistently when required to do so immediat
The rank-dependent expected utility model (originally called anticipated utility) is a generalized expected utility model of choice under uncertainty, designed to explain the behaviour observed in the Allais paradox, as well as for the observation that many people both purchase lottery tickets (implying risk-loving preferences) and insure against losses (implying risk aversion).
Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. [1] The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics .
The work of Maurice Allais and Daniel Ellsberg showed that human behavior has systematic and sometimes important departures from expected-utility maximization (Allais paradox and Ellsberg paradox). [11] The prospect theory of Daniel Kahneman and Amos Tversky renewed the empirical study of economic behavior with less emphasis on rationality ...
Behavioral game theory began with the work of Allais in 1953 and Ellsberg in 1961. They discovered the Allais paradox and the Ellsberg paradox, respectively. [8] Both paradoxes show that choices made by participants in a game do not reflect the benefit they expect to receive from making those choices.
The classical counter example to the expected value theory (where everyone makes the same "correct" choice) is the St. Petersburg Paradox. [ 3 ] In empirical applications, a number of violations of expected utility theory have been shown to be systematic and these falsifications have deepened understanding of how people actually decide.
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These problems are usually referred to as the Allais paradox and Ellsberg paradox. Beginning in 1979 with the publication of the prospect theory of Daniel Kahneman and Amos Tversky , a range of generalized expected utility models were developed with the aim of resolving the Allais and Ellsberg paradoxes, while maintaining many of the attractive ...