CONSISTENT CHOICES AND THE ALLAIS PROBLEM-THEORETICAL CONSIDERATIONS AND EMPIRICAL RESULTS,
Abstract
A decision problem specially constructed by M. Allais has attracted the attention of a number of students of decision theory. It has been called a 'paradox' because it presumably leads to a set of choices that are inconsistent with the usual norms of decision theory. In a recent paper, D. Morrison attempts to revise decision theory so that such choices would be considered as consistent. This revision involves the incorporation of an individual's asset position. While the consideration of an individual's personal states--including his non-financial states--appears to be a fruitful direction for future research, some theoretical and practical difficulties with this particular formulation are discussed. Whether the Allais problem can be considered as a paradox is an empirical question; however, no formal empirical findings have yet been published. Hence, we present the results of three Allais-type problems given to business executive subjects. While about 35% of the initial choices were inconsistent, there are indications that this tends to be considerably reduced as the subjects understand the implications of the decision theory norms. This latter aspect is after all the more relevant one for a theory that is intendedly normative. We conclude by discussing some training considerations in the context of different representations of Allais-type problems. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Nov 01, 1967
- Accession Number
- AD0665526
Entities
People
- Kenneth R. Maccrimmon
Organizations
- University of California, Los Angeles