A Biological Basis for Expected and Non-expected Utility

Author: Robson A.J.

Source: Journal of Economic Theory, Volume 68, Number 2, February 1996 , pp. 397-424(28)

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Abstract:

A biological model is developed here to determine the fittest attitude to risk. With a fixed environment, the type maximizing expected offspring is selected. This yields the expected utility theorem when translated into a criterion for evaluating gambles over commodities. With a random environment, however, the type selected is strictly less averse to idiosyncratic risk than to risk which is correlated across all individuals. The implied criterion for choice over gambles does not satisfy the expected utility theorem and may induce choice of a gamble which is first-order stochastically dominated. Journal of Economic Literature Classification Number: D81.

Language: English

Document Type: Research article

Affiliations: Department of Economics, University of Western Ontario, London, Ontario, N6A 5C2, Canada

Publication date: 1996-02-01