The Allais paradox is usually interpreted as a violation of the independence axiom and used as evidence against the descriptive validity of expected utility theory. However, we highlight that the paradox involves preferences elicited across two separate choice tasks, and an expected utility maximizer could treat the two tasks as belonging to separate domains. Thus, the standard interpretation relies on an unstated assumption of cross-domain invariance. We formalize a weak version of this assumption, which is necessary to link the two tasks to a single preference relation, and a stronger version, which is required for the standard paradox demonstration. We situate this discussion in the normative literature that derives consistency axioms from more basic rationality principles. We then report a pre-registered, three-condition study (N = 601) designed to eliminate the need for these cross-domain invariance assumptions by embedding the lotteries in progressively more complete choice domains. We find that the violation persists across conditions. A secondary, pre-registered analysis suggests that the pattern reflects a domain-spanning preference for certainty.
This theoretical paper deals with the entry decision of firms in a general equilibrium context. It demonstrates that the zero-profit condition (ZPC), which is usually considered in models, is not always justified. In fact, it depends on both the type of competition and the economic environment. Under monopolistic competition, the ZPC coincides with the optimal entry decision of shareholders only under standard CES preferences, constant marginal costs, and homogeneous economic agents. For alternative preferences, convex costs, capital, or consumer heterogeneity, the ZPC fails to provide the mass of firms compatible with owners’ interests because it focuses only on profits. Similarly, under Cournot competition, the ZPC systematically overestimates the optimal number of firms. Under perfect competition, however, the ZPC remains a valid condition whenever households and firms are homogeneous. Taken together, these findings suggest that the long-run equilibrium in standard models using the ZPC may be misdetermined. As a solution, I advocate replacing the standard ZPC with an occupational choice equilibrium. This approach, already present in a well-established strand of the literature, is shown to be consistent in general equilibrium.
Eliciting preferences from decision-makers who are not utility maximizers implies an intrinsic trade-off between obtaining a coarse preference and an incorrect one (false-positive). Some current tools minimize false positives but become coarser and coarser as the dataset grows. We propose an informational property [Informational Responsiveness] that limits the coarseness problem and, as the dataset grows, characterizes a family of tools that can successfully elicit the underlying preference from a broad set of models. Through a novel experiment, we show that these tools substantially reduce the coarseness of the elicited preference while only marginally increasing false positives. In fact, if the researcher is forced to resolve the uncertainty given by the coarseness of the elicited preference, we show that our proposal leads to a substantial reduction in the expected number of false positives.
We investigate how a plaintiff’s present bias – the tendency to over-value immediate rewards and avoid immediate costs – and her self-awareness of this bias influence the dynamics of litigation. Plaintiffs with a stronger present bias are more likely to reduce and procrastinate litigation efforts. Counterintuitively, plaintiffs who are sophisticated about their own present bias may delay their efforts even more significantly than their naive counterparts, resulting in a particularly stark reduction in their returns. We, thus, show that strategic interaction can reverse the standard non-strategic prediction that sophistication mitigates procrastination. Our analysis concludes by demonstrating how the effect of present bias and self-awareness on total litigation effort, case accuracy, and filing behavior has varying implications for legal outcomes and social welfare, contingent on the intensity of the bias and the underlying merits of a case.
Ambiguity attitudes, which capture how behavior differs under risky situations (known probabilities) versus uncertain situations (unknown probabilities), are well-established in behavioral economics. While widely studied in theoretical settings, their role in social dilemmas such as public good provision remains underexplored. In particular, little empirical attention has been paid to how perceived ambiguity about others’ contributions shapes individual behavior in public good games. This study addresses that gap by examining the relationship between ambiguity attitudes and contribution decisions in a strategic setting. Our results indicate that notwithstanding the normative arguments for higher levels of cooperation under ambiguity aversion, individuals with more pessimistic expectations about their group members’ contributions tend to contribute less themselves.
