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The Dynamic Evolution of Preferences

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Author Info
Aviad Heifetz
Chris Shannon
Yossi Spiegel

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Abstract

This paper develops a general methodology for characterizing the dynamic evolution of preferences in a wide class of strategic interactions. We give simple conditions characterizing the limiting distribution of preferences in general games, and apply our results to study the evolutionary emergence of overconfidence and interdependent preferences. We also show that this methodology can be adapted to cases where preferences are only imperfectly observed.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1415.

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Date of creation: Oct 2005
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Handle: RePEc:nwu:cmsems:1415

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Keywords: dispositions evolution of preferences selection dynamics perception biases interdependent preferences imperfect observability

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  4. Sethi, Rajiv & Somanathan, E., 2001. "Preference Evolution and Reciprocity," Journal of Economic Theory, Elsevier, vol. 97(2), pages 273-297, April. [Downloadable!] (restricted)
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  5. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August. [Downloadable!] (restricted)
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  6. Robson, Arthur J., 1996. "The Evolution of Attitudes to Risk: Lottery Tickets and Relative Wealth," Games and Economic Behavior, Elsevier, vol. 14(2), pages 190-207, June. [Downloadable!] (restricted)
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  8. Roland Babou & Jean Tirole, 1999. "Self-Confidence And Social Interactions," Working Papers 151, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.. [Downloadable!]
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  9. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August. [Downloadable!] (restricted)
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  10. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
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  12. Ok, Efe A. & Vega-Redondo, Fernando, 2001. "On the Evolution of Individualistic Preferences: An Incomplete Information Scenario," Journal of Economic Theory, Elsevier, vol. 97(2), pages 231-254, April. [Downloadable!] (restricted)
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  15. Nittai Bergman & Yaacov Z Bergman, 2000. "Ecologies of Preferences with Envy As An Antidote to Risk Aversion in Bargaining," Levine's Working Paper Archive 7561, UCLA Department of Economics. [Downloadable!]
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  18. J. Oechssler & F. Riedel, . "Evolutionary Dynamics on Infinite Strategy Spaces," Sonderforschungsbereich 373 1998-68, Humboldt Universitaet Berlin.
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  19. Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers 97-02, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  20. Nabil Al-Najjar & Sandeep Baliga & David Besanko, 2006. "The Sunk Cost Bias and Managerial Pricing Practices," 2006 Meeting Papers 851, Society for Economic Dynamics.
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  21. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August. [Downloadable!] (restricted)
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  22. Werner G, th & Bezalel Peleg, 2001. "When will payoff maximization survive? An indirect evolutionary analysis," Journal of Evolutionary Economics, Springer, vol. 11(5), pages 479-499. [Downloadable!] (restricted)
  23. Possajennikov, Alex, 2000. "On the evolutionary stability of altruistic and spiteful preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 125-129, May. [Downloadable!] (restricted)
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  25. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  26. Colin Camerer & Dan Lovallo, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March. [Downloadable!] (restricted)
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  30. Bar-Gill, O. & Fershtman, C., 2001. "The Limit of Public Policy: Endogenous Preferences," Papers 2001-5, Tel Aviv.
  31. Heifetz, Aviad & Shannon, Chris & Spiegel, Yossi, 2007. "What to maximize if you must," Journal of Economic Theory, Elsevier, vol. 133(1), pages 31-57, March. [Downloadable!] (restricted)
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  32. Leininger, W. & Linhart, P. B. & Radner, R., 1989. "Equilibria of the sealed-bid mechanism for bargaining with incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 63-106, June. [Downloadable!] (restricted)
  33. Bester, Helmut & Guth, Werner, 1998. "Is altruism evolutionarily stable?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 193-209, February. [Downloadable!] (restricted)
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  34. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July. [Downloadable!] (restricted)
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  37. Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 353-383, September. [Downloadable!] (restricted)
  38. Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-64, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany. [Downloadable!]
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  2. Nabil Al-Najjar & Sandeep Baliga & David Besanko, 2005. "The Sunk Cost Bias and Managerial Pricing Practices," Levine's Bibliography 666156000000000496, UCLA Department of Economics. [Downloadable!]
    Other versions:
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