In decision theory and economics, ambiguity aversion (also known as uncertainty aversion) is a preference for known risks over unknown risks. An ambiguity-averse individual would rather choose an alternative where the probability distribution of the outcomes is known over one where the probabilities are unknown.
The Arrow information paradox (information paradox for short, or AIP), and occasionally referred to as Arrow's disclosure paradox, named after Kenneth Arrow, American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks, is a problem faced by companies when managing intellectual property across their boundaries. It occurs when they seek external technologies for their business or extern
Arrow's impossibility theorem is a key result in social choice theory showing that no ranked-choice procedure for group decision-making can satisfy the requirements of rational choice. Specifically, American economist Kenneth Arrow showed no such rule can satisfy independence of irrelevant alternatives, the principle that a choice between two alternatives A and B should not depend on the quality of some third, unrela
In economics and commerce, the Bertrand paradox — named after its creator, Joseph Bertrand — describes a situation in which two players (firms) reach a state of Nash equilibrium where both firms charge a price equal to marginal cost ('MC'). The paradox is that in models such as Cournot competition, an increase in the number of firms is associated with a convergence of prices to marginal costs.
In decision theory, economics, and probability theory, the Dutch book arguments are a set of results showing that agents must satisfy the axioms of rational choice to avoid a kind of self-contradiction called a Dutch book. A Dutch book, sometimes also called a money pump, is a set of bets that ensures a guaranteed loss, i.e., the gambler will lose money no matter what happens.
There is generally an inverse correlation between monetary income and the total fertility rate within and between nations. The higher the degree of education and GDP per capita of a human population, subpopulation or social stratum, the fewer children are born in any developed country.
The Downs–Thomson paradox (named after Anthony Downs and John Michael Thomson), also known as the Pigou–Knight–Downs paradox (after Arthur Cecil Pigou and Frank Knight), states that the equilibrium speed of car traffic on a road network is determined by the average door-to-door speed of equivalent journeys taken by public transport or the next best alternative. Although consistent with economic theory, it is a parado
The Easterlin paradox is a finding in happiness economics formulated in 1974 by Richard Easterlin, then professor of economics at the University of Pennsylvania, and the first economist to study happiness data. Easterlin further refined his finding during his subsequent long career at the University of Southern California.
To solve the Bertrand paradox, the Irish economist Francis Ysidro Edgeworth put forward the Edgeworth Paradox in his paper 'The Pure Theory of Monopoly', published in 1897. In economics, the Edgeworth paradox describes a situation in which two players cannot reach a state of equilibrium with pure strategies, i.e.
Gibson's paradox is the observation that the rate of interest and the general level of prices under the gold standard are positively correlated. It is named for British economist Alfred Herbert Gibson who noted the correlation in a 1923 article for Banker's Magazine.
In microeconomics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa, violating the law of demand. For ordinary goods, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; the income effect can either reinforce or weaken this decline in demand, but for an ordinary good never outweighs it.
The Green Paradox is a controversial book by German economist, Hans-Werner Sinn, describing the observation that an environmental policy that becomes greener with the passage of time acts like an announced expropriation for the owners of fossil fuel resources, inducing them to accelerate resource extraction and hence to accelerate global warming.
The Grossman–Stiglitz Paradox is a paradox introduced by Sanford J. Grossman and Joseph Stiglitz in a joint publication in American Economic Review in 1980 that argues perfectly informationally efficient markets are an impossibility since, if prices perfectly reflected available information, there is no profit to gathering information, in which case there would be little reason to trade and markets would eventually c
In economics, the Jevons paradox, or Jevons effect, is said to occur when technological improvements that increase the efficiency of a resource's use lead to a rise, rather than a fall, in total consumption of that resource. Greater efficiency reduces the amount of the resource needed per application, lowering its effective cost; if demand is sufficiently price elastic, this induces demand such that the per-unit savi
In economics, the Leontief's paradox is that a country with a higher capital per worker has a lower capital/labor ratio in exports than in imports. This econometric finding was the result of Wassily W. Leontief's attempt to test the Heckscher–Ohlin theory ('H–O theory') empirically.
In economics, the Lerner paradox is the theoretical possibility that imposing tariffs raises the world price of the import good, causing a deterioration of the tariff-imposing country's terms of trade. Abba Lerner showed the possibility in his 1936 article.
In economics, the Lucas paradox or the Lucas puzzle is the observation that capital does not flow from developed countries to developing countries despite the fact that developing countries have lower levels of capital per worker. Classical economic theory predicts that capital should flow from rich countries to poor countries, due to the effect of diminishing returns of capital.
In economics, the Metzler paradox (named after the American economist Lloyd Metzler) is the theoretical possibility that the imposition of a tariff on imports may reduce the relative internal price of that good. It was proposed by Lloyd Metzler in 1949 upon examination of tariffs within the Heckscher–Ohlin model.
The Mexican paradox is the observation that Mexicans exhibit a surprisingly low incidence of low birth weight (especially foreign-born Mexican mothers), contrary to what would be expected from their socioeconomic status (SES). This appears as an outlier in graphs correlating SES with low-birth-weight rates.
Paradox of competition in economics names a model of a situation where measures, which offer a competitive advantage to an individual economic entity, lead to nullification of advantage if all others behave in the same way. In some cases the finite state is even more disadvantageous for everybody than before (for the totality as well as for the individual).
The resource curse, also known as the paradox of plenty or the poverty paradox, is the hypothesis that countries with an abundance of natural resources (such as fossil fuels and certain minerals) have lower economic growth, lower rates of democracy, or poorer development outcomes than countries with fewer natural resources. There are many theories and much academic debate about the reasons for and exceptions to the a
Paradox of prosperity is a term used widely in many instances in economics, social theory and general commentary. In inter-generational analysis, Professor Gilbert N. M. O. Morris defines the term through an analysis of the familial dynamics and social proclivities of what Tom Brokaw has called the 'Greatest Generation'.
The paradox of thrift (or paradox of saving) is a paradox of economics. The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving.
The paradox of toil is the economic hypothesis that, under certain conditions, total employment will shrink if there is an increased desire among the population to take on paid work. According to the macroeconomist Gauti Eggertsson, this occurs when 'the short-term nominal interest rate is zero and there are deflationary pressures and output contraction'.
The paradox of voting, also called Downs' paradox, is that for a rational and egoistic voter (Homo economicus), the costs of voting will normally exceed the expected benefits. Because the chance of exercising the pivotal vote is minuscule compared to any realistic estimate of the private individual benefits of the different possible outcomes, the expected benefits of voting are less than the costs.
Polanyi's paradox, named in honour of the British-Hungarian philosopher Michael Polanyi, is the theory that human knowledge of how the world functions and of our own capability are, to a large extent, beyond our explicit understanding. The theory was articulated by Michael Polanyi in his book The Tacit Dimension in 1966, and economist David Autor gave it a name in his 2014 research paper 'Polanyi's Paradox and the Sh
The resource curse, also known as the paradox of plenty or the poverty paradox, is the hypothesis that countries with an abundance of natural resources (such as fossil fuels and certain minerals) have lower economic growth, lower rates of democracy, or poorer development outcomes than countries with fewer natural resources. There are many theories and much academic debate about the reasons for and exceptions to the a
The Scitovsky paradox is a paradox in welfare economics which is resolved by stating that there is no increase in social welfare by a return to the original part of the losers. It is named after the Hungarian born American economist, Tibor Scitovsky.
The Green Paradox is a controversial book by German economist, Hans-Werner Sinn, describing the observation that an environmental policy that becomes greener with the passage of time acts like an announced expropriation for the owners of fossil fuel resources, inducing them to accelerate resource extraction and hence to accelerate global warming.
In economics, the paradox of banknotes or cash paradox is the observation that while the share of cash transactions has fallen over the past few decades due to alternative forms of payment such as credit cards and other electronic payment instruments, the demand for physical currency, measured as the ratio of currency in circulation (CIC) to GDP, has been steadily increasing since the early 2000s. This phenomenon con
In economics, the throw away paradox is a situation in which a person can gain by throwing away some of his property. It was first described by Robert J. Aumann and B. Peleg as a note on a similar paradox by David Gale.
Rent-seeking is the act of growing one's existing wealth by manipulating public policy or economic conditions without creating new wealth. Rent-seeking activities have negative effects on the rest of society.