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Evolutionary stability of prospect theory preferences

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  • Rieger, Marc Oliver

Abstract

We demonstrate that in simple 2×2 games (cumulative) prospect theory preferences can be (semi-)evolutionarily stable, in particular, a population of players with prospect theory preferences is stable against more rational players, i.e. players with a smaller degree of probability weighting. We also show that in a typical game with infinitely many strategies, the “war of attrition”, probability weighting is (semi-)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, Marc Oliver, 2014. "Evolutionary stability of prospect theory preferences," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 1-11.
    • Handle: RePEc:eee:mateco:v:50:y:2014:i:c:p:1-11
    DOI: 10.1016/j.jmateco.2013.11.002
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    1. Marc Oliver Rieger & Mei Wang & Thorsten Hens, 2017. "Estimating cumulative prospect theory parameters from an international survey," Theory and Decision, Springer, vol. 82(4), pages 567-596, April.
    2. Wu, Bin & Cheng, Jing & Qi, Yuqing, 2020. "Tripartite evolutionary game analysis for “Deceive acquaintances” behavior of e-commerce platforms in cooperative supervision," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).
    3. Herold, Florian & Netzer, Nick, 2023. "Second-best probability weighting," Games and Economic Behavior, Elsevier, vol. 138(C), pages 112-125.
    4. Aurélien Nioche & Nicolas P. Rougier & Marc Deffains & Sacha Bourgeois-Gironde & Sébastien Ballesta & Thomas Boraud, 2021. "The adaptive value of probability distortion and risk-seeking in macaques' decision-making," Post-Print hal-03005035, HAL.
    5. Peter P. Wakker, 2023. "The correct formula of 1979 prospect theory for multiple outcomes," Theory and Decision, Springer, vol. 94(2), pages 183-187, February.
    6. Metzger, Lars Peter & Rieger, Marc Oliver, 2019. "Non-cooperative games with prospect theory players and dominated strategies," Games and Economic Behavior, Elsevier, vol. 115(C), pages 396-409.

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