Evolution and Human Nature

rom an economic perspective on individual decision making, human beings have three key characteristics: preferences, beliefs and rationality. Beliefs are the probabilities with which people think various outcomes will occur, conditional on information that might be available. Preferences are the rankings over the set of gambles that are based on such beliefs over the outcomes. Rationality is the extent to which people succeed in choosing optimal actions in the light of their beliefs and preferences and the extent to which their beliefs are appropriately modified by their information. Economists typically impose only rather weak assumptions on preferences. For example, preferences are taken to be transitive and, sometimes less explicitly, exogenous and unchanging. Stronger assumptions are typically imposed on preferences in specific contexts, however. For example, preferences over time might be represented by an additively separable function with constant rate of discount, despite widespread recognition that this case is a special one. Further, attitudes to risk are often represented by the expected utility theorem, which rests on assumptions that are strong, if also appealing. The assumptions made on rationality, in particular, are usually very strong. That is, rationality in economic models usually entails the exact optimization of preferences and modification of beliefs in accordance with Bayes' theorem. The economist's basic picture of preferences, beliefs and rationality has been subject to challenges from a growing number of empirical anomalies. The proposed explanations of these anomalies involve relaxing the assumptions that economists make on these preferences, beliefs or rationality. For example, preferences