Evolution of risk preferences

Abstract

Abstract. This paper presents a simulation, made with a genetic algorithm (GA), in order to shape risk attitudes in a simple environment of lotteries such as the Machina triangle. An overlapping generations case is used where only bankrupted agents exit the market at every generation. The main result is that imposing the simple condition of the bankruptcy benchmark, with instantaneous wealth as fitness measure, is enough to induce stochastic dominance. The resulting indifference curves are shaped graphically, measuring how far they are from the ideal risk neutral case.

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