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Title:Evolutionary stability of prospect theory preferences PDF Logo
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, Center for Mathematical Economics (IMW), Bielefeld University

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