Question

1. There is evidence to suggest that elicited social preferences vary over time for the same individual. For instance, a person might appear selfish one month and a reciprocator the next month. How should we interpret that?
2. Why does evolution favour individuals who avoid aggregate risk?

Answer 1

Ans.

Tastes and preferences vary at different over time period and among communities, countries etc.,

We can understand this with the help of an example with security and risk framework. For e.g. during a recession, investors place relatively high values on safer assets such as government securities and shares of companies with steady (or growing) positive cash flows, such as utilities and producers of staple goods. Such preferences reflect the fact that the marginal utility of a safe income stream increases in periods when employment is insecure or declining. When asset markets expect the end of a recession and the beginning of an expansion phase, risky assets will be repriced upward. When an expansion is expected, the markets will start incorporating higher profit expectations into the prices of corporate bonds and stocks, particularly those of such cyclical companies as producers of discretionary goods, for example automobiles.
Because each customer has tastes and preferences that are a bit different, slight variations of each good or service are likely to capture the niche of the market that prefers them.