The Dynamic Evolution of Preferences

This paper develops a general methodology for characterizing the dynamic evolution of preferences in a wide class of strategic interactions. We give simple conditions characterizing the limiting distribution of preferences in general games, and apply our results to study the evolutionary emergence of overconfidence and interdependent preferences. We also show that this methodology can be adapted to cases where preferences are only imperfectly observed. Earlier drafts of this paper were circulated under the title: “The Evolution of Perception Biases” and some of these results appeared in the earlier working paper Heifetz, Shannon and Spiegel (2003). We thank three anonymous referees for their helpful comments. Shannon thanks the NSF for research support under grant SES-0351346.