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| Title: | | Evolutionary stability of prospect theory preferences  |
| Authors: | | Rieger, Marc Oliver |
| Issue Date: | | 2009 |
| Series/Report no.: | | Working papers // Institute of Mathematical Economics 422 |
| Abstract: | | 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. |
| Subjects: | | prospect theory existence of Nash equilibria evolutionary stability |
| JEL: | | C70 C73 D81 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers, Institute of Mathematical Economics, Universität Bielefeld
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