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Evolutionary stability of prospect theory preferences

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  • Rieger, Marc Oliver

    (Center for Mathematical Economics, Bielefeld University)

Abstract

We demonstrate that in simple 2 x 2 games (cumulative) prospect theory preferences can be evolutionarily stable, i.e. a population of players with prospect theory preferences can not be invaded by more rational players. This holds also if probability weighting is applied to the probabilities of mixed strategies. We also show that in a typical game with infinitely many strategies, the “war of attrition”, probability weighting is evolutionarily stable. Finally, we generalize to other notions of stability. Our results may help to explain why probability weighting is generally observed in humans, although it is not optimal in usual decision problems.

Suggested Citation

  • Rieger, Marc Oliver, 2015. "Evolutionary stability of prospect theory preferences," Center for Mathematical Economics Working Papers 422, Center for Mathematical Economics, Bielefeld University.
  • Handle: RePEc:bie:wpaper:422
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    File URL: https://pub.uni-bielefeld.de/download/2788387/2788388
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    Keywords

    prospect theory; existence of Nash equilibria; evolutionary stability;
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