The Allais Paradox is indeed quite puzzling. Here are my thoughts:
0. Some commenters simply dismiss Bayesian reasoning. This doesn't solve the problem, it just strips us of any mathematical way to analyze the problem. On the other hand, the fact that the inconsistent choice seems ok does mean that the Bayesian way is missing something. Simply dismissing the inconsistent choice doesn't solve the problem either.
1. If I understand correctly, you argue that situation 1 can be turned into situation 2 by randomization. In other words, if you sell me situation 1,... (read more)
The Allais Paradox is indeed quite puzzling. Here are my thoughts:
0. Some commenters simply dismiss Bayesian reasoning. This doesn't solve the problem, it just strips us of any mathematical way to analyze the problem. On the other hand, the fact that the inconsistent choice seems ok does mean that the Bayesian way is missing something. Simply dismissing the inconsistent choice doesn't solve the problem either.
1. If I understand correctly, you argue that situation 1 can be turned into situation 2 by randomization. In other words, if you sell me situation 1,... (read more)