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Evolutionary rationality of risk preference

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  • Songjia Fan
  • Yi Tao
  • Cong Li

Abstract

Selection shapes all kinds of behaviors, including how we make decisions under uncertainty. The risk attitude reflected from it should be simple, flexible, yet consistent. In this paper we engaged evolutionary dynamics to find the decision making rule concerning risk that is evolutionarily superior, and developed the theory of evolutionary rationality. We highlight the importance of selection intensity and fitness, as well as their equivalents in the human mind, named as attention degree and meta-fitness, in the decision making process. Evolutionary rationality targets the maximization of the geometric mean of meta-fitness (or fitness), and attention degree (or selection intensity) holds the key in the change of attitude of the same individual towards different events and under varied situations. Then as an example, the Allais paradox is presented to show the application of evolutionary rationality, in which the anomalous choices made by the majority of people can be well justified by a simple change in the attention degree.

Suggested Citation

  • Songjia Fan & Yi Tao & Cong Li, 2022. "Evolutionary rationality of risk preference," Papers 2206.09813, arXiv.org.
  • Handle: RePEc:arx:papers:2206.09813
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