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Evolution of Preferences

Author

Listed:
  • Dekel, Eddie
  • Ely, Jeffrey
  • Yilankaya, Okan
Abstract
We model, using evolutionary game theory, the implications of endogenous determination of preferences over the outcomes of any given two-player normal form game, G. We consider a large population randomly and repeatedly matched to play G. Each individual has a preference relation over the outcomes of G which may be different than the "true" payoff function in G, and makes optimal choices given her preferences. The evolution of preferences is driven by the payoffs in G that each player obtains. We define stable outcomes (of G) as arising from the stable points of the evolutionary process described above. In our most general model players know the distribution of preferences in the population and observe their opponents' preferences with probability p. They then play a (Bayesian) Nash equilibrium of the resulting game of incomplete information. In the case in which players can perfectly observe their opponents' preferences, i.e., p=1, (where the game is actually one of complete information) an outcome is stable only if it is efficient. Also, an efficient outcome which arises from a strict Nash equilibrium is stable. We also characterize, for 2×2 games, both the stable outcomes and the stable distributions of preferences in the population. When preferences are unobservable, i.e., p=0, we show that stability in our model of evolution of preferences coincides with the notion of neutrally stable strategy (NSS). Finally, we consider robustness of these results. The necessity and sufficiency results are robust to slight changes in p, except for the sufficiency of NSS when p=0: There are in fact (Pareto-inferior) risk-dominant strict equilibria that are not stable for any p>0.

Suggested Citation

  • Dekel, Eddie & Ely, Jeffrey & Yilankaya, Okan, 2004. "Evolution of Preferences," Microeconomics.ca working papers dekel-04-08-13-01-21-07, Vancouver School of Economics, revised 09 Jun 2006.
    • Handle: RePEc:ubc:pmicro:dekel-04-08-13-01-21-07
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    File URL: http://www.econ.ubc.ca/yilankaya/evlprfr.pdf
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    Citations

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    Cited by:

    1. Heifetz, Aviad & Shannon, Chris & Spiegel, Yossi, 2007. "What to maximize if you must," Journal of Economic Theory, Elsevier, vol. 133(1), pages 31-57, March.
    2. Franz Dietrich & Christian List, 2013. "Where do preferences come from?," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(3), pages 613-637, August.
    3. Federico Weinschelbaum & David K. Levine & Salvatore Modica & Felipe Zurita, 2010. "Evolving to the Impatience Trap: The Example of the Farmer-Sheriff Game," Working Papers 109, Universidad de San Andres, Departamento de Economia, revised Aug 2011.
    4. Häfner, Samuel, 2018. "Stable biased sampling," Games and Economic Behavior, Elsevier, vol. 107(C), pages 109-122.
    5. Ingela Alger & Donald Cox, 2013. "The evolution of altruistic preferences: mothers versus fathers," Review of Economics of the Household, Springer, vol. 11(3), pages 421-446, September.
    6. Kai A. Konrad & Florian Morath, 2011. "Evolutionarily stable in-group favoritism and out-group spite in intergroup conflict," Working Papers evolutionarily_stable, Max Planck Institute for Tax Law and Public Finance.
    7. Possajennikov, Alex, 2002. "Cooperative Prisoners and Aggressive Chickens: Evolution of Strategies and Preferences in 2x2 Games," Sonderforschungsbereich 504 Publications 02-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    8. David K. Levine & Salvatore Modica, 2013. "Conflict, evolution, hegemony, and the power of the state," Working Papers 2013-023, Federal Reserve Bank of St. Louis.
    9. Dietrich, Franz, 2012. "Modelling change in individual characteristics: An axiomatic framework," Games and Economic Behavior, Elsevier, vol. 76(2), pages 471-494.
    10. Yuval Heller & Eyal Winter, 2016. "Rule Rationality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(3), pages 997-1026, August.
    11. Konrad, Kai A. & Morath, Florian, 2016. "Bargaining with incomplete information: Evolutionary stability in finite populations," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 118-131.
    12. Julian Jamison, 2012. "Games with Synergistic Preferences," Games, MDPI, vol. 3(1), pages 1-15, March.
    13. Herold, Florian & Kuzmics, Christoph, 2009. "Evolutionary stability of discrimination under observability," Games and Economic Behavior, Elsevier, vol. 67(2), pages 542-551, November.
    14. Alex Possajennikov, 2004. "Two-Speed Evolution of Strategies and Preferences In Symmetric Games," Theory and Decision, Springer, vol. 57(3), pages 227-263, November.
    15. DellaVigna, Stefano & LiCalzi, Marco, 2001. "Learning to make risk neutral choices in a symmetric world," Mathematical Social Sciences, Elsevier, vol. 41(1), pages 19-37, January.
    16. Tarik Tazdaït & Alejandro Caparros & Jean-Chrsitophe Péreau, 2008. "Mutual Aid: An Indirect Evolution Analysis," Working Papers halshs-00275386, HAL.
    17. David K. Levine & Salvatore Modica, 2012. "Conflict and the evolution of societies," Working Papers 2012-032, Federal Reserve Bank of St. Louis.
    18. Manapat, Michael L. & Nowak, Martin A. & Rand, David G., 2013. "Information, irrationality, and the evolution of trust," Journal of Economic Behavior & Organization, Elsevier, vol. 90(S), pages 57-75.
    19. Erik Mohlin, 2010. "Internalized social norms in conflicts: an evolutionary approach," Economics of Governance, Springer, vol. 11(2), pages 169-181, April.
    20. Mohlin, Erik, 2012. "Evolution of theories of mind," Games and Economic Behavior, Elsevier, vol. 75(1), pages 299-318.
    21. Heifetz, Aviad & Shannon, Chris & Spiegel, Yossi, 2002. "What to Maximize If You Must," Department of Economics, Working Paper Series qt0hj6631n, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    22. von Widekind, Sven, 2011. "Evolution of non-expected utility preferences," Center for Mathematical Economics Working Papers 370, Center for Mathematical Economics, Bielefeld University.
    23. Heifetz, Aviad & Segev, Ella & Talley, Eric, 2007. "Market design with endogenous preferences," Games and Economic Behavior, Elsevier, vol. 58(1), pages 121-153, January.
    24. Conley, John P. & Neilson, William, 2009. "Endogenous games and equilibrium adoption of social norms and ethical constraints," Games and Economic Behavior, Elsevier, vol. 66(2), pages 761-774, July.
    25. Eyal Winter & Ignacio Garcia-Jurado & Jose Mendez-Naya & Luciano Mendez-Naya, 2009. "Mental Equilibrium and Rational Emotions," Discussion Paper Series dp521, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.

    More about this item

    Keywords

    Evolution of preferences; observability;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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