Darwinian adverse selection

DOI10.3233/AF-160056MaRDI QIDQ4683439zbMATH OpenOpenAlexFDO

Authors Wolfgang Kuhle

Publication date 21 September 2018

Published in Algorithmic Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1507.04934

zbMATH Keywords

biologyeconomicsindividual rationalitymaximization

Mathematics Subject Classification ID

Rationality and learning in game theory (91A26) Decision theory (91B06)

Abstract: We develop a model to study the role of rationality in economics and biology. The model's agents differ continuously in their ability to make rational choices. The agents' objective is to ensure their individual survival over time or, equivalently, to maximize profits. In equilibrium, however, rational agents who maximize their objective survival probability are, individually and collectively, eliminated by the forces of competition. Instead of rationality, there emerges a unique distribution of irrational players who are individually not fit for the struggle of survival. The selection of irrational players over rational ones relies on the fact that all rational players coordinate on the same optimal action, which leaves them collectively undiversified and thus vulnerable to aggregate risks.

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Cited in

(8)

• On the economics of vanishing
• The survival value of assuming others to be rational
• Survival and the art of profit maximization
• Surprise, surprise from neoclassical economics to e-life
• Darwinian selection in a locally unstable Boolean network
• Live fast, die young
• Irrationality-proofness: markets versus games
• Darwinian fitness

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