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Risk and Evolution

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  • Theodore To
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Abstract

I examine a Knightian model of entrepreneurial risk and investment where in addition to the self-selection process for choosing entrepreneurs, there is an evolutionary selection process over the representation of various risk attitudes. Under a standard evolutionary dynamic, rather than converging to a population of risk-neutrals (fitness maximizers), the population converges to a stationary distribution where both risk-averse and risk-loving types are represented and where only the risk-loving types invest. Many types are represented in stationary population distributions because an evolutionary market environment protects and encourages diversity with different types specalizing in different activities and in the steady state each type earns, on average, the same objective payoff.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9513.

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Date of creation: Oct 1995
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Handle: RePEc:san:crieff:9513

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Keywords: preference evolution; risk and uncertainty; theory of the entrepreneur;

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References

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  1. Ed Hopkins, . "Learning, Matching and Aggregation," Discussion Papers 1996-2, Edinburgh School of Economics, University of Edinburgh.
  2. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
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Cited by:
  1. Schipper, Burkhard C., 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 68, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
  3. Hammer, Raphaël P. & Burton-Jeangros, Claudine, 2013. "Tensions around risks in pregnancy: A typology of women's experiences of surveillance medicine," Social Science & Medicine, Elsevier, vol. 93(C), pages 55-63.
  4. Steffen Huck & Georg Kirchsteiger & Jörg Oechssler, 2003. "Learning to Like What You Have - Explaining the Endowment Effect," Bonn Econ Discussion Papers bgse5_2003, University of Bonn, Germany.
  5. Haab, Timothy C. & Whitehead, John C. & Parsons, George R. & Price, Jammie, 2010. "Effects of information about invasive species on risk perception and seafood demand by gender and race," Resource and Energy Economics, Elsevier, vol. 32(4), pages 586-599, November.
  6. Carlos Oyarzun & Johannes Ruf, 2009. "Monotone imitation," Economic Theory, Springer, vol. 41(3), pages 411-441, December.
  7. Dirk Engelmann, 2003. "Risk Aversion Pays in the Class of 2 x 2 Games with No Pure Equilibrium," CERGE-EI Working Papers wp211, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Warneryd, Karl, 2002. "Rent, risk, and replication: Preference adaptation in winner-take-all markets," Games and Economic Behavior, Elsevier, vol. 41(2), pages 344-364, November.
  9. Curry, Philip A., 2001. "Decision Making under Uncertainty and the Evolution of Interdependent Preferences," Journal of Economic Theory, Elsevier, vol. 98(2), pages 357-369, June.

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