Allais for the poor

Relations to ability, information processing, and risk attitudes

authored by

Tabea Herrmann, Olaf Hübler, Lukas Menkhoff, Ulrich Schmidt

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.

Organisation(s)

Faculty of Economics and Management

External Organisation(s)

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

Type

Article

Journal

Journal of risk and uncertainty

Volume

54

Pages

129-156

No. of pages

28

ISSN

0895-5646

Publication date

12.06.2017

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Accounting, Finance, Economics and Econometrics

Sustainable Development Goals

SDG 8 - Decent Work and Economic Growth

Electronic version(s)

http://hdl.handle.net/10419/155363 (Access: Open)
https://doi.org/10.1007/s11166-017-9258-y (Access: Closed)