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Risk and Evolution

Author

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  • Ted To

    (Dept. of Economics, University of St. Andrews, Scotland)

Abstract

I examine a Knightian model of entrepreneurial risk and investment where in addition to the self-selection process for choosing entrepreneurs, there is an evolutionary selection process over the representation of various risk attitudes. Under a standard evolutionary dynamic, rather than converging to a population of risk-neutrals (fitness maximizers), the population converges to a stationary distribution where both risk- averse and risk-loving types are represented and where only the risk- loving types invest. Many types are represented in stationary population distributions because an evolutionary market environment protects and encourages diversity with different types specializing in different activities and in the steady state each type earns, on average, the same objective payoff.

Suggested Citation

  • Ted To, 1995. "Risk and Evolution," Microeconomics 9511003, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:9511003
    Note: Type of Document - Tex DVI file; prepared on emTeX; to print on any; pages: 32 ; figures: included
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    References listed on IDEAS

    as
    1. Hopkins, Ed, 1999. "Learning, Matching, and Aggregation," Games and Economic Behavior, Elsevier, vol. 26(1), pages 79-110, January.
    2. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    preference evolution; risk and uncertainty; entrepreneur;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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