A Unified, Resource-Rational Account of the Allais and Ellsberg Paradoxes

Abstract

Decades of empirical and theoretical research on human decision-making has broadly categorized it into two, separate realms: decision-making under risk and decision-making under uncertainty, with the Allais paradox and the Ellsberg paradox being a prominent example of each, respectively. In this work, we present the first unified, resource-rational account of these two paradoxes. Specifically, we show that Nobandegani et al.’s (2018) sample-based expected utility model provides a unified, process-level account of the two variants of the Allais paradox (the common-consequence effect and the common-ratio effect) and the Ellsberg paradox. Our work suggests that the broad framework of resource-rationality could permit a unified treatment of decision-making under risk and decision-making under uncertainty, thus approaching a unified account of human decision-making.