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Kingreaper comments on The Allais Paradox - Less Wrong
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I would love to know if the results are different if you repeatedly expose people to the situation rather than communicate it in a formal way. They are likely to observe the outcomes of their strategy and adapt. Perhaps what is being measured is simply the numeracy of the subjects and not their practical inability to determine optimal strategies.
The lottery is another interesting example, what is being bought is the probability of a big win, not a statistically optimal investment. Playing the lottery genuinely increases the chance of you suddenly gaining a life changing amount of money. This is a perfectly rational choice.
What about the Allais paradox? Imagine someone who is happy to play the lottery but would refuse to play an alternative version where the ticket merely confers a slight increase on a significant pre-existing probability of winning 'life changing money'. (As I understand it, most/all lottery players would in fact refuse the 'alternative' gamble.) Do you want to say that such a person is 'perfectly rational'? Would you call them perfectly rational if they accepted both gambles (despite both of them having negative EV)?
To be fair, It is possible to tell a consistent story about a person for whom either gamble would be rational: Perhaps the Earth is going to be destroyed soon and the cost of entry into the new self-sustaining Mars colony equals the lottery jackpot.
But needless to say, most people aren't in situations remotely resembling this one.
This is likely because playing the lottery gives you "hope" of a life-changing event. It means that you KNOW there is a possible life-changing event available.
If you already have that knowledge, then paying for the lottery becomes just about the money; which isn't worthwhile. If you don't, paying for the lottery is buying that knowledge, and the knowledge has value to you.