Human brains consistently value certainty far more than the mathematical probability of a win
The Allais Paradox demonstrates that the human brain is wired to prefer certain gains over higher mathematical probabilities, a flaw that frequently distorts rational financial decision-making.
In 1953, economist Maurice Allais revealed a fundamental inconsistency in human logic known as the Allais Paradox. He found that when people are offered a choice between a 100 percent chance of receiving $1 million and an 89 percent chance of $1 million with a 10 percent chance of $5 million, most choose the certainty. However, when the probabilities are shifted slightly, the same individuals often switch their preference in a way that violates the mathematical laws of expected utility.
There's more to this story — open the app to keep reading.