Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155363
Authors: 
Herrmann, Tabea
Hübler, Olaf
Menkhoff, Lukas
Schmidt, Ulrich
Year of Publication: 
2017
Series/Report no.: 
DIW Discussion Papers 1645
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.
Subjects: 
field experiments
Allais paradox
socio-demographic characteristics
prospective reference theory
first order stochastic dominance
risk attitude
optimism
JEL: 
D81
D03
O10
Document Type: 
Working Paper

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