Heterodox Economics: The Allais Paradox

Excerpted from chapter 16, section 1:

Maurice Allais (1911- ) has had a lifelong interest in history and experimental physics. He is one of the great economic theorists of the 20th century. In 1988 he was awarded a Nobel Prize in Economic Sciences for making seminal contributions to market-especially general equilibrium-theory. But Allais is perhaps most famous for discovering in expected utility theory a paradox, the so-called "Allais Paradox," overturning a famous result that had been forwarded by John von Neumann and Oscar Morgenstern. Human decision makers, including specialists in human decision-making such as the statistician Leonard J. Savage, choose consumption goods differently, even contradictorily, depending on how the risk and uncertainty of the outcome is presented to them.