Self-preservation as a foundation of rational behavior under risk

This paper derives an expected utility theorem from the principle of self-preservation thus providing a new interpretation of the notion of rationality underlying the von Neumann-Morgenstern theory. Self-preservation is defined as the maximization of the probability of survival in a finite horizon model where in each period the decision maker must choose a risky prospect from a feasible set of such prospects and becomes extinct if his accumulated fortune becomes non-positive. It is shown that the choice of the optimal strategy may be regarded as an expected utility maximizing behavior and that violations of the independence axiom, e.g., Allais paradox, imply that decision-makers choose a probability of survival smaller than the maximum possible given the set of acts. Furthermore, according to this approach rational attitudes toward risk are also derived from the model.