Evolutionary Justifications for Non-Bayesian Beliefs

9 Pages Posted: 27 Feb 2014

See all articles by Hanzhe Zhang

Hanzhe Zhang

Department of Economics, Michigan State University

Date Written: August 15, 2013

Abstract

This paper suggests that the evolutionarily optimal belief of an agent’s intrinsic reproductive ability is systematically different from the posterior belief obtained by the perfect Bayesian updating. In particular, the optimal belief depends on how risk-averse the agent is. Although the perfect Bayesian updating remains evolutionarily optimal for a risk-neutral agent, it is not for any other. Specifically, the belief is always positively biased for a risk-averse agent, and the more risk-averse an agent is, the more positively biased the optimally updated belief is. Such biased beliefs align with experimental findings and also offer an alternative explanation to the empirical puzzle that people across the population appear overconfident by consistently overestimating their personal hereditary traits.

Keywords: Non-Bayesian belief, Risk-aversion, Evolutionary economics, Overconfidence, Bias

JEL Classification: C73, D83

Suggested Citation

Zhang, Hanzhe, Evolutionary Justifications for Non-Bayesian Beliefs (August 15, 2013). Economics Letters, Vol. 121, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2401439

Hanzhe Zhang (Contact Author)

Department of Economics, Michigan State University ( email )

486 West Circle Drive
East Lansing, MI 48824
United States

HOME PAGE: http://hanzhezhang.github.io/

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