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Evolution of time preferences and attitudes toward risk


Netzer, Nick (2009). Evolution of time preferences and attitudes toward risk. American Economic Review, 99(3):937-955.

Abstract

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.

Abstract

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.

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18 citations in Web of Science®
21 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:June 2009
Deposited On:11 Dec 2009 10:00
Last Modified:05 Apr 2016 13:20
Publisher:American Economic Association
ISSN:0002-8282
Additional Information:"Permission to make digital or hard copies of part or all of American Economic Association publications for personal or classroom use is granted without fee provided that copies are not distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. The author has the right to republish, post on servers, redistribute to lists and use any component of this work in other works."
Publisher DOI:https://doi.org/10.1257/aer.99.3.937

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