Re: Is Game Theory Applicable Here?
No, this is not an example of Allais paradox. This is an example of utility theory. People frequently makes choices that have a smaller EV because their marginal utility for money increases at a decreasing rate. That is, having 16,000 for sure has a greater utility than having a possibility of 32,000, even though that option has a (slightly) higher EV.
Allais paradox occurs when people make choices that are inconsistent with expected utility theory. The example you provided is simply an example of utility theory.
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