Abstract
This paper investigates the allegation that deviations from the expected utility behavior such as the Allais Paradox reduces the probability of survival. This implies a two-valued lexicografic utility with no trade-off between on the one side probability of survival and on the other wealth in case of survival. Two examples are demonstrated where maximizing probability of survival in two choice situations implies a set of choices that add up to the Allais Paradox. - In testing the interpretation that the Allais Paradox is in fact compatible with the expected utility theory (rightly understood) it is also shown that if each choice in the Allais paradox is reversed, this new set of choices is equivalent to the original set according to the composite game (“independence”) axiom (3:C:b), which is therefore rejected by empirical evidence.
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HAGEN, O. (1991). Expected Utility Theory - The “Confirmation” That Backfires. In: Chikán, A. (eds) Progress in Decision, Utility and Risk Theory. Theory and Decision Library, vol 13. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-3146-9_7
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DOI: https://doi.org/10.1007/978-94-011-3146-9_7
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