Evolution, Local Risk and Skewness Loving

Theoretical Economics (forthcoming)

27 Pages Posted: 21 Jul 2019 Last revised: 6 Aug 2020

See all articles by Yuval Heller

Yuval Heller

Bar Ilan University

Arthur Robson

Simon Fraser University (SFU)

Date Written: June 15, 2020

Abstract

Our understanding of risk preferences can be sharpened by considering their evolutionary basis. The existing literature has focused on two sources of risk: idiosyncratic risk and aggregate risk. We introduce a new source of risk, heritable risk, in which there is a positive correlation between the fitness of a newborn agent and the fitness of her parent. Heritable risk was plausibly common in our evolutionary past and it leads to a strictly higher growth rate than the other sources of risk. We show that the presence of heritable risk in the evolutionary past may explain the tendency of people to exhibit skewness loving today

Keywords: evolution of preferences, risk atti- tude, risk interdependence, long-run growth rate, fertility rate.

JEL Classification: D81, D91

Suggested Citation

Heller, Yuval and Robson, Arthur, Evolution, Local Risk and Skewness Loving (June 15, 2020). Theoretical Economics (forthcoming), Available at SSRN: https://ssrn.com/abstract=3423594 or http://dx.doi.org/10.2139/ssrn.3423594

Yuval Heller (Contact Author)

Bar Ilan University ( email )

Dept. of Economics, Building 504
Bar Ilan University
Ramat Gan, 5290002
Israel
+972 5252 82182 (Phone)

HOME PAGE: http://https://sites.google.com/site/yuval26/

Arthur Robson

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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