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The Origin of Behavior

Thomas J. Brennan

Harvard Law School

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

November 15, 2009

We propose a single evolutionary explanation for the origin of several behaviors that have been observed in organisms ranging from ants to human subjects, including risk-sensitive foraging, risk aversion, loss aversion, probability matching, randomization, and diversification. Given an initial population of individuals, each assigned a purely arbitrary behavior with respect to a binary choice problem, and assuming that offspring behave identically to their parents, only those behaviors linked to reproductive success will survive, and less reproductively successful behaviors will disappear at exponential rates. When the uncertainty of reproductive success is systematic, natural selection yields behaviors that may be individually sub-optimal but are optimal from the population perspective; when reproductive uncertainty is idiosyncratic, the individual and population perspectives coincide. This framework generates a surprisingly rich set of behaviors, and the simplicity and generality of our model suggest that these derived behaviors are primitive and nearly universal within and across species.

Number of Pages in PDF File: 58

Keywords: Behavioral Finance, Probability Matching, Loss Aversion, Risk Aversion, Risk Preferences, Evolution

JEL Classification: G00, D81, D01, D03, C73

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Date posted: November 15, 2009 ; Last revised: November 23, 2010

Suggested Citation

Brennan, Thomas J. and Lo, Andrew W., The Origin of Behavior (November 15, 2009). Available at SSRN: https://ssrn.com/abstract=1506264 or http://dx.doi.org/10.2139/ssrn.1506264

Contact Information

Thomas J. Brennan
Harvard Law School ( email )
1557 Massachusetts Ave
6 Ever
Cambridge, MA 02138
United States
617-495-3141 (Phone)
Andrew W. Lo (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
100 Main Street
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)
HOME PAGE: http://web.mit.edu/alo/www
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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