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Evolution, Heritable Risk, and Skewness Loving

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  • Yuval Heller
  • Arthur Robson

Abstract

Our understanding of risk preferences can be sharpened by considering their evolutionary basis. The existing literature has focused on two sources of risk: idiosyncratic risk and aggregate risk. We introduce a new source of risk, heritable risk, in which there is a positive correlation between the fitness of a newborn agent and the fitness of her parent. Heritable risk was plausibly common in our evolutionary past and it leads to a strictly higher growth rate than the other sources of risk. We show that the presence of heritable risk in the evolutionary past may explain the tendency of people to exhibit skewness loving today.

Suggested Citation

  • Yuval Heller & Arthur Robson, 2020. "Evolution, Heritable Risk, and Skewness Loving," Papers 2005.05772, arXiv.org, revised Aug 2020.
    • Handle: RePEc:arx:papers:2005.05772
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    References listed on IDEAS

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    1. Duffie, Darrell & Sun, Yeneng, 2012. "The exact law of large numbers for independent random matching," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1105-1139.
    2. Arthur J. Robson & Larry Samuelson, 2009. "The Evolution of Time Preference with Aggregate Uncertainty," American Economic Review, American Economic Association, vol. 99(5), pages 1925-1953, December.
    3. Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
    4. Yuval Heller, 2014. "Overconfidence and Diversification," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 134-153, February.
    5. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    6. Robatto, Roberto & Szentes, Balázs, 2017. "On the biological foundation of risk preferences," Journal of Economic Theory, Elsevier, vol. 172(C), pages 410-422.
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    Cited by:

    1. Heller, Yuval & NEHAMA, Ilan, 2021. "Evolutionary Foundation for Heterogeneity in Risk Aversion," MPRA Paper 110194, University Library of Munich, Germany.
    2. Heller, Yuval & Nehama, Ilan, 2023. "Evolutionary foundation for heterogeneity in risk aversion," Journal of Economic Theory, Elsevier, vol. 208(C).

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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