Evolutionary stability of prospect theory preferences

Rieger MO (2009) Working Papers. Institute of Mathematical Economics; 422.
Bielefeld: Center for Mathematical Economics.

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We demonstrate that in simple 2 x 2 games (cumulative) prospect theory preferences can be evolutionarily stable, i.e. a population of players with prospect theory preferences can not be invaded by more rational players. This holds also if probability weighting is applied to the probabilities of mixed strategies. We also show that in a typical game with infinitely many strategies, the “war of attrition”, probability weighting is evolutionarily stable. Finally, we generalize to other notions of stability. Our results may help to explain why probability weighting is generally observed in humans, although it is not optimal in usual decision problems.
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Rieger MO. Evolutionary stability of prospect theory preferences. Working Papers. Institute of Mathematical Economics. Vol 422. Bielefeld: Center for Mathematical Economics; 2009.
Rieger, M. O. (2009). Evolutionary stability of prospect theory preferences (Working Papers. Institute of Mathematical Economics, 422). Bielefeld: Center for Mathematical Economics.
Rieger, M. O. (2009). Evolutionary stability of prospect theory preferences. Working Papers. Institute of Mathematical Economics, 422, Bielefeld: Center for Mathematical Economics.
Rieger, M.O., 2009. Evolutionary stability of prospect theory preferences, Working Papers. Institute of Mathematical Economics, no.422, Bielefeld: Center for Mathematical Economics.
M.O. Rieger, Evolutionary stability of prospect theory preferences, Working Papers. Institute of Mathematical Economics, vol. 422, Bielefeld: Center for Mathematical Economics, 2009.
Rieger, M.O.: Evolutionary stability of prospect theory preferences. Working Papers. Institute of Mathematical Economics, 422. Center for Mathematical Economics, Bielefeld (2009).
Rieger, Marc Oliver. Evolutionary stability of prospect theory preferences. Bielefeld: Center for Mathematical Economics, 2009. Working Papers. Institute of Mathematical Economics. 422.
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