Weber's Law and the Biological Evolution of Risk Preferences: The Selective Dominance of the Logarithmic Utility Function

32 Pages Posted: 31 Oct 2002

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich

Date Written: September 2002

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.

Keywords: Evolution, Selection, Risk Preferences

JEL Classification: A12, D8

Suggested Citation

Sinn, Hans-Werner, Weber's Law and the Biological Evolution of Risk Preferences: The Selective Dominance of the Logarithmic Utility Function (September 2002). CESifo Working Paper Series No. 770. Available at SSRN: https://ssrn.com/abstract=343622

Hans-Werner Sinn (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Ludwig Maximilian University of Munich

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