Abstract: Recent research in neuroscience provides a foundation for a von Neumann Morgenstern utility function that is both hedonic and adaptive. We model such adaptation as arising from a limited capacity to make fine distinctions, where the utility functions adapt in real time. For minimizing the probability of error, an optimal mechanism is particularly simple. For maximizing expected fitness, a still simple mechanism is approximately optimal. The model predicts the hedonic treadmill and behavioral contrast effects. It has the promise to explain the S-shape of utility of Kahneman-Tversky, and resolve the puzzle posed by Rabin concerning attitudes to risk in experiments.

Bio: Arthur Robson's research has revolved for more than twenty five years around the belief that modern human economic behavior is best explained by considering biological and anthropological factors. Such a view was once heretical but is becoming more widely accepted within economics. Before joining the faculty of Simon Fraser University, Robson held a faculty position at the University of Western Ontario. He has held visiting positions at Johns Hopkins University, University of Michigan, University of Chicago, Yale, NYU, Princeton, and Stanford. Robson is a Fellow of the Royal Society of Canada and the Econometric Society. He won the John Rae Prize for 2014 from the Canadian Economics Association. Robson earned his Ph.D. in Economics at the Massachusetts Institute of Technology, where he also took courses in Pure Mathematics. He was a Fulbright Fellow.