Ihor Kendiukhov

In situation 1, you choose between gamble A, certainty of 1 million euros, and gamble B, 89% chance of 1 million, 10% chance of 5 million, 1% chance of nothing.

Most people choose A.

In Situation 2, you choose between Gamble C, 11% chance of 1 million, 89% chance of nothing, and Gamble D, 10% chance of 5 million, 90% chance of nothing.

Most people choose D. But the move from Situation 1 to Situation 2 is exactly a common consequence substitution.

You strip out the same 89% component from both options in each pair.

Independence says this shouldn't change your preference, so if you chose A over B, you should choose C over D. People do the opposite, and this is treated as evidence of irrationality, a paradox revealing that human risk cognition is systematically biased.

I want to argue that it is not a paradox at all.

It is rational behavior that only looks paradoxical if you insist on evaluating each branch of a lottery independently of every other branch, which is exactly what the independence axiom demands and exactly what a holistic reasoner should not do.

Consider why people choose a in-situation one.

The certainty of 1 million is qualitatively different from a 99% chance of getting at least 1 million with a 1% chance of getting nothing.

That 1% of nothing looms large because of what it means in context.

You are giving up a sure million for a gamble that could leave you with nothing.

The certain outcome provides a flaw, a guaranteed trajectory, and evaluating the gamble requires considering what happens along the entire trajectory, including the branch where you get nothing while knowing you could have had a certain million.

Now consider situation 2.

Both options involve a high probability of getting nothing.

There is no certainty to give up, no flaw to sacrifice.

The context has fundamentally changed.

You are already in a world where you will probably get nothing, and the question is just whether to take a slightly higher probability of a moderate payout or a slightly lower probability of a much larger one.

In this context, going for the higher expected value is sensible.

The shift from A over B to D over C is a rational response to the fact that the overall risk structure of the gamble has changed.