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Weber’s law and the biological evolution of risk preferences: The selective dominance of the logarithmic utility function, 2002 Geneva risk lecture

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  • Sinn, Hans-Werner

Abstract

The paper offers a proof that expected utility maximisation with logarithmic utility is a dominant preference in the biological selection process in the sense that a population following any other preference for decision-making under risk will, with a probability that approaches certainty, disappear relative to the population following this preference as time goes to infinity. The result is contrasted with Weber’s and Fechner’s Psychophysical Law which implies logarithmic sensation functions for objective physical stimuli.

Suggested Citation

  • Sinn, Hans-Werner, 2003. "Weber’s law and the biological evolution of risk preferences: The selective dominance of the logarithmic utility function, 2002 Geneva risk lecture," Munich Reprints in Economics 19612, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19612
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    1. Sinn, Hans-Werner, 1980. "Ökonomische Entscheidungen bei Ungewißheit," Monograph, Mohr Siebeck, Tübingen, edition 1, number urn:isbn:9783169427024.
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    4. Kagel,John H. & Battalio,Raymond C. & Green,Leonard, 2007. "Economic Choice Theory," Cambridge Books, Cambridge University Press, number 9780521035927, September.
    5. Karni, Edi & Schmeidler, David, 1986. "Self-preservation as a foundation of rational behavior under risk," Journal of Economic Behavior & Organization, Elsevier, vol. 7(1), pages 71-81, March.
    6. Raymond Battalio & Leonard Green & John Kagel, 1995. "Economic choice theory. an experimental analysis of animal behavior," Framed Field Experiments 00166, The Field Experiments Website.
    7. Sinn, Hans-Werner, 1985. "Psychophysical laws in risk theory," Journal of Economic Psychology, Elsevier, vol. 6(2), pages 185-206, June.
    8. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
    9. Arthur J. Robson, 2001. "The Biological Basis of Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 39(1), pages 11-33, March.
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    Cited by:

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    2. José F. Tudón M., 2019. "Perception, utility, and evolution," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 191-208, December.
    3. Burkhard C. Schipper, 2021. "The evolutionary stability of optimism, pessimism, and complete ignorance," Theory and Decision, Springer, vol. 90(3), pages 417-454, May.
    4. Rehme, Günther, 2014. "Endogenous (re-)distributive policies and economic growth: A comparative static analysis," Economic Modelling, Elsevier, vol. 40(C), pages 355-366.
    5. Levy, Moshe & Nir, Adi Rizansky, 2012. "The utility of health and wealth," Journal of Health Economics, Elsevier, vol. 31(2), pages 379-392.
    6. Moshe Levy, 2022. "An evolutionary explanation of the Allais paradox," Journal of Evolutionary Economics, Springer, vol. 32(5), pages 1545-1574, November.

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