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Evolution of Time Preferences and Attitudes toward Risk

  • Nick Netzer

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)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.3.937
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 3 (June)
Pages: 937-55

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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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  2. Partha Dasgupta & Eric Maskin, 2004. "Uncertainty and Hyperbolic Discounting," Economics Working Papers 0023, Institute for Advanced Study, School of Social Science.
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  10. 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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  13. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
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  17. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  18. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
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