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Darwinian Adverse Selection

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  • Wolfgang Kuhle

Abstract

We develop a model to study the role of rationality in economics and biology. The model's agents differ continuously in their ability to make rational choices. The agents' objective is to ensure their individual survival over time or, equivalently, to maximize profits. In equilibrium, however, rational agents who maximize their objective survival probability are, individually and collectively, eliminated by the forces of competition. Instead of rationality, there emerges a unique distribution of irrational players who are individually not fit for the struggle of survival. The selection of irrational players over rational ones relies on the fact that all rational players coordinate on the same optimal action, which leaves them collectively undiversified and thus vulnerable to aggregate risks.

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  • Wolfgang Kuhle, 2015. "Darwinian Adverse Selection," Papers 1507.04934, arXiv.org.
    • Handle: RePEc:arx:papers:1507.04934
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    References listed on IDEAS

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    1. Samuelson, Paul A, 1972. "Maximum Principles in Analytical Economics," American Economic Review, American Economic Association, vol. 62(3), pages 249-262, June.
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    3. Sidney G. Winter, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(2), pages 237-261.
    4. Max Wolf & G. Sander van Doorn & Olof Leimar & Franz J. Weissing, 2007. "Life-history trade-offs favour the evolution of animal personalities," Nature, Nature, vol. 447(7144), pages 581-584, May.
    5. Samuelson, Paul A, 1993. "Altruism as a Problem Involving Group versus Individual Selection in Economics and Biology," American Economic Review, American Economic Association, vol. 83(2), pages 143-148, May.
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    Cited by:

    1. Chih-Hsiung Chang, 2022. "Information Asymmetry and Card Debt Crisis in Taiwan," Bulletin of Applied Economics, Risk Market Journals, vol. 9(2), pages 123-145.

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