An Evolutionary Perspective on Updating Risk and Ambiguity Preferences

Abstract

Using an evolutionary approach, we address the prominent tension in the literature that updating of ambiguity and non-expected-utility preferences cannot, in general, be both dynamically consistent and consequentialist. Perhaps not surprisingly, evolutionary optimality requires dynamic consistency. The more subtle insight is the evolutionary optimality of systematic violations of consequentialism. We base our investigation on the model of adaptive preferences (Sadowski and Sarver (2024)), which generalizes the model of Robson (1996) and nests variants of many well known models in the literature.

Keywords: evolution of preferences, ambiguity, updating, dynamic consistency, phenotypic flexibility

JEL Classification: D81, D83, D84