The Origin of Behavior

Thomas J. Brennan () and Andrew Lo ()
Additional contact information
Thomas J. Brennan: School of Law, Northwestern University, 375 East Chicago Avenue, Chicago, IL 60611–3069, USA

Quarterly Journal of Finance (QJF), 2011, vol. 01, issue 01, 55-108

Abstract: We propose a single evolutionary explanation for the origin of several behaviors that have been observed in organisms ranging from ants to human subjects, including risk-sensitive foraging, risk aversion, loss aversion, probability matching, randomization, and diversification. Given an initial population of individuals, each assigned a purely arbitrary behavior with respect to a binary choice problem, and assuming that offspring behave identically to their parents, only those behaviors linked to reproductive success will survive, and less reproductively successful behaviors will disappear at exponential rates. When the uncertainty in reproductive success is systematic, natural selection yields behaviors that may be individually sub-optimal but are optimal from the population perspective; when reproductive uncertainty is idiosyncratic, the individual and population perspectives coincide. This framework generates a surprisingly rich set of behaviors, and the simplicity and generality of our model suggest that these derived behaviors are primitive and nearly universal within and across species.

Keywords: Probability matching; loss aversion; risk aversion; risk preferences; behavioral finance; evolution; adaptive markets hypothesis (search for similar items in EconPapers)
Date: 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S201013921100002X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:01:y:2011:i:01:n:s201013921100002x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S201013921100002X

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().