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Risk and Evolution

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  • Ted To

    (Dept. of Economics, University of St. Andrews, Scotland)

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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 specializing 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 EconWPA in its series Microeconomics with number 9511003.

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Length: 32 pages
Date of creation: 16 Nov 1995
Date of revision:
Handle: RePEc:wpa:wuwpmi:9511003

Note: Type of Document - Tex DVI file; prepared on emTeX; to print on any; pages: 32 ; figures: included
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Related research

Keywords: preference evolution; risk and uncertainty; entrepreneur;

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References

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  1. Hopkins, Ed, 1999. "Learning, Matching, and Aggregation," Games and Economic Behavior, Elsevier, vol. 26(1), pages 79-110, January.
  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. 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.
  2. 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.
  3. Carlos Oyarzun & Johannes Ruf, 2009. "Monotone imitation," Economic Theory, Springer, vol. 41(3), pages 411-441, December.
  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. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.

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