Allais for the poor: Relations to ability, information processing, and risk attitudes

Research output: Contribution to journal › Article › Research › peer review

Authors

  • Tabea Herrmann
  • Olaf Hübler
  • Lukas Menkhoff
  • Ulrich Schmidt

Research Organisations

External Research Organisations

  • German Institute for Economic Research (DIW)
  • Humboldt-Universität zu Berlin (HU Berlin)
  • Kiel Institute for the World Economy
  • University of Johannesburg
  • Kiel University
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Details

Original languageEnglish
Pages (from-to)129-156
Number of pages28
JournalJournal of risk and uncertainty
Volume54
Issue number2
Publication statusPublished - 12 Jun 2017

Abstract

This paper complements evidence on the Allais paradox from advanced countries and educated people by a novel investigation in a poor rural area. The share of Allais-type behavior is indeed high and related to indicators of “lacking ability,” such as poor education, unemployment, and little financial sophistication. Based on prospective reference theory, we extend these characteristics by biased processing of probabilistic information. Finally, we reveal that Allais-type behavior is linked to risk-related characteristics, such as risk tolerance and optimism. This indicates a potential problem as exactly the more dynamic among the poor tend to make inconsistent decisions under uncertainty.

Keywords

    Allais paradox, Cognitive ability, Field experiments, First order stochastic dominance, Optimism, Prospective reference theory, Risk attitude, Socio-demographic characteristics

ASJC Scopus subject areas

Sustainable Development Goals

Cite this

Allais for the poor: Relations to ability, information processing, and risk attitudes. / Herrmann, Tabea; Hübler, Olaf; Menkhoff, Lukas et al.
In: Journal of risk and uncertainty, Vol. 54, No. 2, 12.06.2017, p. 129-156.

Research output: Contribution to journal › Article › Research › peer review

Herrmann T, Hübler O, Menkhoff L, Schmidt U. Allais for the poor: Relations to ability, information processing, and risk attitudes. Journal of risk and uncertainty. 2017 Jun 12;54(2):129-156. doi: 10.1007/s11166-017-9258-y
Herrmann, Tabea ; Hübler, Olaf ; Menkhoff, Lukas et al. / Allais for the poor : Relations to ability, information processing, and risk attitudes. In: Journal of risk and uncertainty. 2017 ; Vol. 54, No. 2. pp. 129-156.
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