Maurice Allais

The So-Called Allais Paradox and Rational Decisions under Uncertainty

The present memoir constitutes an extension of my 1952 study, The Foundations of a Positive Theory of Choice Involving Risk and a Criticism of the Postulates and Axioms of the American School (see Part II of this Volume), completing it and adding further comments in the light of the criticisms addressed to it and the analysis of the responses to the experiment carried out in 1952 by means of a Questionnaire. Its aim was to display the behaviour in situations of random choice of people who are generally considered by the common opinion as rational on criteria that are free of all reference to any consideration of random choice.

The General Theory of Random Choices in Relation to the Invariant Cardinal Utility Function and the Specific Probability Function. The (U, θ) Model A General Overview

Allais’ general theory of random choices is essentially based on the consideration of the invariant cardinal utility function and the whole distribution of cardinal utilities, and on the general preference for security in the neighbourhood of certainty when large sums are at stake.

Theories of General Economic Equilibrium and Maximum Efficiency

1. Marie Esprit Leon Walras (1834-1910) is celebrated today among economists throughout the world as the first to have formulated the equations of general economic equilibrium4. His work was without doubt a turning point in the history of economic thought and the transformation of economics into a true science. For the first time, an over-all synthesis of economic equilibrium was presented in the framework of a general model, in which all prices and quantities were determined simultaneously by a system of equations. By putting Walras’ work back into its historical context, we can assert that, whatever its weaknesses or defects, by its influence, it marked the beginning of modern economic science.

Forgetfulness and Interest

1. In earlier publications,3 I have tried to show how the quantity theory of money can be formulated operationally by considering two new concepts, the rate of forgetfulness and psychological time. The rate of forgetfulness bears the same relation to the past as the rate of interest does to the future. Psychological time defolnes a transformation of the time reference scale such that the rate of forgetfulness per unit of time is constant. For fifteen different cases studied, confrontation of this theory with available data on the money supply and global expenditure shows that the results are what one would expect if the theory were correct.3 4 The purpose of this study is to show that it is possible to derive the new formulation from simpler and more attractive postulates than those used earlier, following systematic application of the fundamental analogy between interest and forgetfulness,5 6 and that it results from the confrontation of the new theory, in its new

THE INFLUENCE OF THE CAPITAL-OUTPUT RATIO ON REAL NATIONAL INCOME'

This paper presents first a general theory of a capitalistic optimum and a model illustrating its essential features, and, secondly, the empirical justification of this model, and its principal applications. Under very general conditions it is possible to show that we cannot expect, from an indefinite increase of available real capital, an indefinite increase of real national income consumed per inhabitant, and that there is an optimum amount of capital for which the real income per inhabitant is maximum. The conditions under which this maximum is attained are given. The general model, which is presented, and, in particular, its exponential variety, appear quite remarkably confirmed by all presently available empirical data, with respect to both the hypotheses and the results. A very simple expression of consumed real income is given in terms of the rate of interest i and the rate of growth Q.

The Credit Mechanism and its Implications

The more that is issued of a mixed currency, the more will be wanted. The supply does not satisfy the demand: it excites it. Like an unnatural stimulus taken into the human system, it creates an increasing desire for more; and the more it is gratified, the more insatiable are its cravings.

The Economic Science of Today and Global Disequilibrium

The essential condition of any science is the existence of regularities which can be analyzed and forecast. This is the case in celestial mechanics. But it is also true of many economic phenomena. Indeed their thorough analysis displays the existence of regularities which are just as striking as those found in the physical sciences. This is why economics is a science, and why this science rests on the same general principles and methods as physics.

Determination of Cardinal Utility According to an Intrinsic Invariant Model

The purpose of the Paper is to show that it is possible to represent all the empirical data of the 1952 Experiment (19 subjects) and of the 1975 Experiment (8 subjects) by only one model, the same whatever the subjects considered.

Three Theorems on the Theory of Cardinal Utility and Random Choice

The purpose of the present paper is to demonstrate and briefly comment on three essential theorems on the theory of cardinal utility and random choice. According to the first theorem the invariance of cardinal utility in any linear transformation implies a particular invariant form for the preference function of random choice. According to the second theorem the Postulate of cardinal isovariation 1 is a necessary consequence of the invariance of cardinal utility in any linear transformation. According to the third theorem the neo-Bernoullian index B(x), if it exists, is identical to cardinal utility u(x).

A New Neo-Bernoullian Theory: The Machina Theory A Critical Analysis

Machina’s local utility theory, in its inspiration and its approach, appears as a new neo-Bernoullian theory.