Allais paradox

The Allais paradox is a choice pattern, first demonstrated by Maurice Allais in 1953, that systematically violates the independence axiom of expected utility theory. When faced with a choice between a certain outcome and a gamble with slightly higher expected value, people overwhelmingly prefer certainty; but when both options are embedded in a probabilistic frame, they reverse their preference. This demonstrates that the certainty effect — the overweighting of outcomes that are guaranteed — is a fundamental feature of human valuation, not a minor deviation from rationality. The paradox is not a failure of expected utility theory; it is a demonstration that the theory's axioms describe a mathematically convenient agent, not a psychologically real one. It remains the canonical empirical challenge to the classical framework.\n\n\n\n