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Allais for the poor

Author

Listed:
  • Herrmann, Tabea
  • Hübler, Olaf
  • Menkhoff, Lukas
  • Schmidt, Ulrich

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 characteristics 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.

Suggested Citation

  • Herrmann, Tabea & Hübler, Olaf & Menkhoff, Lukas & Schmidt, Ulrich, 2016. "Allais for the poor," Kiel Working Papers 2036, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2036
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    field experiments; Allais paradox; socio-demographic characteristics; prospective reference theory; first order stochastic dominance; risk attitude; optimism;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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