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Evolution of Time Preferences and Attitudes toward Risk

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  • Nick Netzer

Abstract

This paper explores a general model of the evolution and adaption of hedonic utility. It is shown that optimal utility will be increasing strongly in regions where choices have to be made often and decision mistakes have a severe impact on fitness. Several applications are suggested. In the context of intertemporal preferences, the model offers an evolutionary explanation for the existence of conflicting short- and long-run interests that lead to dynamic inconsistency. Concerning attitudes toward risk, an evolutionary explanation is given for S-shaped value functions that adjust to the decision maker's environment. (JEL D81, D83)

Suggested Citation

  • Nick Netzer, 2009. "Evolution of Time Preferences and Attitudes toward Risk," American Economic Review, American Economic Association, vol. 99(3), pages 937-955, June.
  • Handle: RePEc:aea:aecrev:v:99:y:2009:i:3:p:937-55
    Note: DOI: 10.1257/aer.99.3.937
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    References listed on IDEAS

    as
    1. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-481, June.
    2. David K. Levine & Drew Fudenberg, 2006. "A Dual-Self Model of Impulse Control," American Economic Review, American Economic Association, vol. 96(5), pages 1449-1476, December.
    3. 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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    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    6. Larry Samuelson & Arthur J. Robson, 2007. "The Evolution of Intertemporal Preferences," American Economic Review, American Economic Association, vol. 97(2), pages 496-500, May.
    7. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    8. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, January.
    9. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    10. Schelling, Thomas C, 1984. "Self-Command in Practice, in Policy, and in a Theory of Rational Choice," American Economic Review, American Economic Association, vol. 74(2), pages 1-11, May.
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    12. Partha Dasgupta & Eric Maskin, 2005. "Uncertainty and Hyperbolic Discounting," American Economic Review, American Economic Association, vol. 95(4), pages 1290-1299, September.
    13. Elster, Jon, 1985. "Weakness of will and the free-rider problem," Mathematical Social Sciences, Elsevier, vol. 10(3), pages 293-294, December.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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