Price, Michael Holton and James Holland Jones
The standard theory of rationality posits that agents order preferences according to average utilities associated with different choices. Expected utility theory has repeatedly failed as a predictive theory, as reflected in a growing literature in behavioural economics. Evolutionary theorists have suggested that seemingly irrational behaviours in contemporary contexts may have once served important functions, but existing work linking fitness and choice has not adequately addressed the challenges of constructing an evolutionary theory of decision making. In particular, fitness itself is not a reasonable metric for decision making since its timescale exceeds the lifespan of the decision-maker. Consequently, organisms use proximate systems that work on appropriate timescales and are amenable to feedback and learning. We develop an evolutionary principal–agent model in which individuals utilize a set of proximal choice variables to account for the non-linear dependence of these variables on consumption. While this is insufficient to maximize fitness in the presence of environmental stochasticity, maximum fitness can be achieved by adopting pessimistic probability weightings compatible with the rank-dependent expected utility family of choice models. In particular, pessimistic probability weighting emerges naturally in an evolutionary framework because of extreme intolerance to zeros in multiplicative growth processes.