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Allais from Experience: Choice Consistency, Rare Events, and Common Consequences in Repeated Decisions
The Allais Paradox is a well-known bias in which people's preferences result in contradictory choices between two normatively identical gamble pairs. Studies have shown that these preference reversals depend on how information is described and presented. In an experiment, we investigate the Allais gambles in several formats including an experiential paradigm, where participants make selections from two blank buttons and get an outcome as a result of a draw from distributions of outcomes in the selected gamble. Results indicate that a large proportion of Allais reversals are found in the traditional descriptive format, they are reduced when gambles are presented in a descriptive table format, and they disappear when choices are made from experience. Although a majority of participants made consistent choices from experience, the proportion of individual reversals is similar to that of descriptive choices. Detailed analyses of experiential choice suggest interesting behavioral differences between participants classified as consistent and those classified as reversals: consistent participants explore and maximize more than reversal participants. Furthermore, consistent participants demonstrate a different switching behavior after experiencing a rare outcome than do reversal participants. We find that, both, overweighting or underweighting of rare outcomes may occur within the course of an individual's experience; depending on the timing of those experiences, the magnitude of the outcomes observed, and the general accumulated value of the gambles.