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Ruixun Zhang, Thomas J. Brennan & Andrew W. Lo, The Origin of Risk Aversion, 111 Proc. Nat'l Acad. Sci. U.S.A. 17777 (2014).

Abstract: Risk aversion is one of the most widely observed behaviors in the animal kingdom; hence, it must confer certain evolutionary advantages. We confirm this intuition analytically in a binary-choice model of decision-making—risk aversion emerges from mindless decision-making as the evolutionarily dominant behavior in stochastic environments with correlated reproductive risk across the population. The simplicity of our framework suggests that our results are likely to apply across species. From a policy perspective, our results underscore the importance of addressing systematic risk through insurance markets, capital markets, and government policy. However, our results also highlight the potential dangers of sustained government intervention, which can become a source of systematic risk in its own right.