The observation that gains saturate has a fairly simple explanation from evolutionary theory: the increased evolutionary fitness advantage from large material gains saturates (especially in a hunter-gatherer environment). Successfully hunting a rabbit will keep me from starving for a day; but if I successfully hunt a mammoth, I can’t keep the meat for long enough for it to feed me for years. The best I can do is feed everyone in the village for a few days, hoping they remember this later when my hunting is less successful, and do a bunch of extra work to make some jerky with the rest. The evolutionary advantage is sub-linear in the kilograms of raw meat. In more recent agricultural societies, rich and powerful men like Ramses II who had O(100) children needed a lot more than 50 times the average resources of men in their society to achieve that outcome (and of course that evolutionary strategy isn’t possible for women). Even today, if I’m unlucky enough to get pancreatic cancer it doesn’t matter how rich I am: all that money isn’t going to save me, even if I’m as rich as Steve Jobs.
Similarly, on the downside, from a personal evolutionary fitness point of view, saturation also makes sense, since there is a limit to how bad things can get: once I, my family, and everyone else in the tribe related to me are all dead, it’s game over, and my personal evolutionary fitness doesn’t really care whether everyone else in the region also died, or not.
So it seems to me that at least the first diagram above of prospect theory may be an example of humans being aligned with evolution’s utility function.
I don’t have a good evolutionary explanation for the second diagram, unless it’s a mechanism to compensate for some psychological or statistical bias in how hunter-gatherers obtain information about and estimate risks, and/or how that compares to modern mathematical risk measures like probabilities and percentages.
The observation that gains saturate has a fairly simple explanation from evolutionary theory: the increased evolutionary fitness advantage from large material gains saturates (especially in a hunter-gatherer environment). Successfully hunting a rabbit will keep me from starving for a day; but if I successfully hunt a mammoth, I can’t keep the meat for long enough for it to feed me for years. The best I can do is feed everyone in the village for a few days, hoping they remember this later when my hunting is less successful, and do a bunch of extra work to make some jerky with the rest. The evolutionary advantage is sub-linear in the kilograms of raw meat. In more recent agricultural societies, rich and powerful men like Ramses II who had O(100) children needed a lot more than 50 times the average resources of men in their society to achieve that outcome (and of course that evolutionary strategy isn’t possible for women). Even today, if I’m unlucky enough to get pancreatic cancer it doesn’t matter how rich I am: all that money isn’t going to save me, even if I’m as rich as Steve Jobs.
Similarly, on the downside, from a personal evolutionary fitness point of view, saturation also makes sense, since there is a limit to how bad things can get: once I, my family, and everyone else in the tribe related to me are all dead, it’s game over, and my personal evolutionary fitness doesn’t really care whether everyone else in the region also died, or not.
So it seems to me that at least the first diagram above of prospect theory may be an example of humans being aligned with evolution’s utility function.
I don’t have a good evolutionary explanation for the second diagram, unless it’s a mechanism to compensate for some psychological or statistical bias in how hunter-gatherers obtain information about and estimate risks, and/or how that compares to modern mathematical risk measures like probabilities and percentages.