Thinking, Fast and Slow

29: The Fourfold Pattern
and other disasters: Including exposure to a “Dutch book,” which is a set of
gambles that your incorrect preferences commit you to accept an { to>
puzzle that Allais constructed: Readers who are familiar with the Allais
paradoxes will recognize that this version is new. It is both much simpler
and actually a stronger violation than the original paradox. The left-hand
option is preferred in the first problem. The second problem is obtained by
adding a more valuable prospect to the left than to the right, but the right-
hand option is now preferred.
sorely disappointed: As the distinguished economist Kenneth Arrow
recently described the event, the participants in the meeting paid little
attention to what he called “Allais’s little experiment.” Personal
conversation, March 16, 2011.
estimates for gains: The table shows decision weights for gains.
Estimates for losses were very similar.
estimated from choices: Ming Hsu, Ian Krajbich, Chen Zhao, and Colin F.
Camerer, “Neural Response to Reward Anticipation under Risk Is
Nonlinear in Probabilities,” 
Journal of Neuroscience 29 (2009): 2231–37.
parents of small children: W. Kip Viscusi, Wesley A. Magat, and Joel
Huber, “An Investigation of the Rationality of Consumer Valuations of
Multiple Health Risks,” 
RAND Journal of Economics 18 (1987): 465–79.
psychology of worry: In a rational model with diminishing marginal utility,
people should pay at least two-thirds as much to reduce the frequency of
accidents from 15 to 5 units as they are willing to pay to eliminate the risk.
Observed preferences violated this prediction.
not made much of it: C. Arthur Williams, “Attitudes Toward Speculative
Risks as an Indicator of Attitudes Toward Pure Risks,” 
Journal of Risk and
Insurance 33 (1966): 577–86. Howard Raiffa, Decision Analysis:
Introductory Lectures on Choices under Uncertainty (Reading, MA:
Addison-Wesley, 1968).
shadow of civil trials: Chris Guthrie, “Prospect Theory, Risk Preference,
and the Law,” 
Northwestern University Law Review 97 (2003): 1115–63.
Jeffrey J. Rachlinski, “Gains, Losses and the Psychology of Litigation,”
Southern California Law Review 70 (1996): 113–85. Samuel R. Gross
and Kent D. Syverud, “Getting to No: A Study of Settlement Negotiations

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and the Selection of Cases for Trial,” 
Michigan Law Review 90 (1991):
319–93.
the frivolous claim: Chris Guthrie, “Framing Frivolous Litigation: A
Psychological Theory,” 
University of Chicago Law Review 67 (2000):
163–216.