Evolution Rationalizes Human Risk and Time Preferences

Abstract: By almost any measure, Homo sapiens is a spectacularly successful species. From humble origins approximately two million years ago, humans have grown to a population that exceeds seven billion and have colonized -- and come to dominate -- nearly every terrestrial biome. This phenomenal growth suggests that, on average, our ancestors made very good decisions. Yet an avalanche work from psychology and economics suggests that the decision-making software that our brains run seems to be profoundly flawed — that we are, in a word, irrational. How can we reconcile this paradox? Humans are biological entities and, as such, we are subject to the laws of evolution. However, when the rules for rational decision-making were discovered and formalized, this fact was ignored. It turns out that the rules for a living organism, anchored in the present and subject to a force of selection which is extremely averse to extinction, are quite different from the rules of abstract, formal rationality. I will show how the all-important need to avoid extinction in a world that is at best incompletely known has profound implications for preferences, utility, and rationality. By ignoring the condition of existential uncertainty, the theory of rational decision-making has developed distorted expectations of how an organism working in its own best interest should behave. I will discuss some of the classic distortions from the rational choice paradigm relating to time and risk preferences revealed by behavioral economics and show how thinking about the way that selection shaped human decision-making rationalizes preferences and has the potential to unify an otherwise disparate collection of anomalies.