Learning in the Allais paradox

Whereas both the Allais paradox, the first empirical challenge of the classical rationality assumptions, and learning have been the focus of many experimental investigations, no experimental study exists today into learning in the pure context of the Allais paradox. This paper presents such a study. We find that choices converge to expected utility maximization if subjects are given the opportunity to learn by both thought and experience, but less so when they learn by thought only. To the extent that genuine preferences should be measured with proper learning and incentives, our study gives the first pure demonstration that irrationalities such as in the Allais paradox are less pronounced than often thought. Paul Anand and Stefan Trautmann made helpful comments.     

Is Transport Safety More Valuable in the Air?

Using a contingent valuation survey, people's willingness to pay for a given risk reduction is found to be much larger, consistently more than two times as large, when traveling by air compared to by taxi. Follow-up questions revealed that an important reason for this discrepancy is that many experience a higher mental suffering from flying, and that they are willing to pay to reduce this suffering. It was also consistently found that people are willing to pay more for a certain risk reduction if the original price was higher. Policy implications are discussed.     

Consequentialist foundations for expected utility

Behaviour norms are considered for decision trees which allow both objective probabilities and uncertain states of the world with unknown probabilities. Terminal nodes have consequences in a given domain. Behaviour is required to be consistent in subtrees. Consequentialist behaviour, by definition, reveals a consequence choice function independent of the structure of the decision tree. It implies that behaviour reveals a revealed preference ordering satisfying both the independence axiom and a novel form of sure-thing principle. Continuous consequentialist behaviour must be expected utility maximizing. Other plausible assumptions then imply additive utilities, subjective probabilities, and Bayes' rule.     

How Much Internalization of Nuclear Risk Through Liability Insurance?

An important source of conflict surrounding nuclear energy is that with a very small probability, a large-scale nuclear accident may occur. One way to internalize the associated financial risks is through mandating nuclear operators to have liability insurance. This paper presents estimates of consumers' willingness to pay for increased financial security provided by an extension of coverage, based on the 'stated choice' approach. A Swiss citizen with median characteristics may be willing to pay 0.14 US cents per kwh to increase coverage beyond the current CHF 0.7 billion (bn.) (US$ 0.47 bn.). Marginal willingness to pay declines with higher coverage but exceeds marginal cost at least up to CHF 4 bn.(US$ 2.7 bn.). An extension of nuclear liability insurance coverage therefore may be efficiency-enhancing.     

Book Reviews

Books reviewed: Alan Walker and Chack‐kie Wong (eds), East Asian welfare regimes in transition: From Confucianism to globalization Robin Lovelock, Karen Lyons and Jackie Powell (eds), Reflecting on Social Work – Discipline and Profession Stephan Leibfried and Michael Zürn, Transformations of the State?     

Unique nontransitive measurement on finite sets

Two themes in the theory of measurement that have been studied extensively in the past few years are numerical representations of nontransitive binary comparison structures and uniqueness in finite measurement systems. This paper brings the two together by exploring the solutions to a nontransitive, additive model that are unique up to multiplication by a positive constant. The model relates to various contexts including decision under risk, evaluation of objectives, comparative probability, and voting theory. The family of unique solutions for the model is shown to be extremely rich and varied.     

Energy Conservation—A Case Study in Campaign Evaluation

This study demonstrates the considerations involved in evaluation research into the effectiveness of campaigns designed to influence social change. It is an examination of the results of applying aspects of the attitude change studies to the subject of environmental issues. A case study was made of the Smallternatives energy conservation campaign which originated in 1976 in Brisbane, at a time of little recognition of an energy 'crisis' for Australia or the need for energy conservation. Results indicated that levels of concern for environmental issues were present throughout the sample; that one group (who requested Smallternatives information) were more concerned about energy and environmental issues than groups who had not requested it; and that the booklet, when issued without request, had little or no effect on desired attitudes towards energy conservation. These results are discussed with respect to the dilemma of attitude-behaviour consistency, and the impact of information input when it is sent to, rather than requested by, the individual.