Irrationality

• Allais paradox
• Would you choose a bet of 80% to get £4000 or 100% to get £3000?
• Would you choose a bet of 20% to get £4000 or 25% to get £3000?
• This is a standard paradox.
• They are cases where people do not maximise expected utility.
• There are other reasons people behave irrationally.
• Sometimes you have to make a quick decision.
• Agents can behave irrationally too, but like people, you want to have a good reason to behave irrationally.