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The equity premium puzzle refers to the observation that people invest far less in the stock market than is implied by measures of their risk aversion in other contexts. Here, we argue that light on this puzzle can be shed by the hypothesis that human risk attitudes were at least partly shaped by our evolutionary history. In particular, a simple evolutionary model shows that natural selection will, over the long haul, favor a greater aversion to aggregate than to idiosyncratic risk. We apply this model-via both a static model of portfolio choice and a dynamic model that allows for intertemporal tradeoffs-to show that an aversion to aggregate risk that is derived from biology may help explain the equity premium puzzle. The type of investor favored in our model would indeed invest less in equities than other common observations of risk-taking behavior from outside the stock market would imply, while engaging in reasonable tradeoffs over time., Competing Interests: The authors declare no competing interest.

Competing Interests: The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Why do we age? Since ageing is a near-universal feature of complex organisms, a convincing theory must provide a robust evolutionary explanation for its ubiquity. This theory should be compatible with the physiological evidence that ageing is largely due to deterioration, which is, in principle, reversible through repair. Moreover, this theory should also explain why natural selection has favoured organisms that first improve with age (mortality rates decrease) and then deteriorate with age (mortality rates rise). We present a candidate for such a theory of life history, applied initially to a species with determinate growth. The model features both the quantity and the quality of somatic capital, where it is optimal to initially build up quantity, but to allow quality to deteriorate. The main theoretical result of the paper is that a life history where mortality decreases early in life and then increases late in life is evolutionarily optimal. In order to apply the model to humans, in particular, we include a budget constraint to allow intergenerational transfers. The resultant theory then accounts for all our basic demographic characteristics, including menopause with extended survival after reproduction has ceased.

The economics of hunting and gathering must have driven the biological evolution of human characteristics, since hunter-gatherer societies prevailed for the two million years of human history. These societies feature huge intergenerational resource flows, suggesting that these resource flows should replace fertility as the key demographic consideration. It is then theoretically expected that life expectancy and brain size would increase simultaneously, as apparently occurred during our evolutionary history. The brain here is considered as a direct form of bodily investment, but also crucially as facilitating further indirect investment by means of learning-by-doing.

Two striking differences between humans and our closest living relatives, chimpanzees and gorillas, are the size of our brains (larger by a factor of three or four) and our life span (longer by a factor of about two). Our thesis is that these two distinctive features of humans are products of coevolutionary selection. The large human brain is an investment with initial costs and later rewards, which coevolved with increased energy allocations to survival. Not only does this theory help explain life history variation among primates and its extreme evolution in humans; it also provides new insight into the evolution of longevity in other biological systems. We introduce and apply a general formal demographic model for constrained growth and evolutionary tradeoffs in the presence of life-cycle transfers between age groups in a population.