An evolutionary explanation for risk aversion

Moshe Levy ()

Journal of Economic Psychology, 2015, vol. 46, issue C, 51-61

Abstract: Recent models of the evolution of preferences have provided profound new insights into the origins of risk attitudes. In most of these models the evolutionary “objective function” is the maximization of the expected number of offspring, or alternatively, the maximization of the geometric-mean growth rate. We suggest that careful consideration should also be given to the objective of maximizing the probability of Having Descendants Forever, p(HDF). We show that the p(HDF) criterion implies risk aversion. Moreover, it leads to preferences that are very closely approximated by the constant relative risk aversion preferences. Thus, constant relative risk aversion can be viewed as an evolutionary-developed heuristic aimed to maximize the probability of having descendants forever.

Keywords: Risk aversion; Evolution; Extinction; Having descendants forever; CRRA preference (search for similar items in EconPapers)
JEL-codes: D03 D81 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:46:y:2015:i:c:p:51-61

DOI: 10.1016/j.joep.2014.12.001

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