Evolution and the Dynamic Preference Specification. We adopt a fundamental approach to selecting among alternative dynamic utility specifications though postulating a rational basis for the goals. We propose that the principle of survival of the fittest should shape which utility functions are selected. If a longer survival time allows an individual to foster a greater number of offspring, evolutionary forces will lead to maximization of average survival time. We find that the rate of time preference depends endogenously on the ageing process and wealth.
Individuals become more myopic as wealth or health deteriorate.
As a result a natural poverty line occurs below which a cycle of poverty arises and individuals become risk seeking out of desperation. Even as individuals become risk seeking in terms of consumption they remain risk averse in terms of wealth. Dollar-Cost Averaging and Age Effects in Efficient Portfolio Plans. First-order stochastically dominating shifts are always preferred. The behavior of absolute and relative risk aversion is discussed, and several results in the expected utility literature are shown also to hold in the present context.