Citation
The logic of risk-sensitive foraging preferences
TL;DR
Risk-seeking becomes optimal when average outcome falls below survival threshold
Stephens provided the theoretical foundation for understanding why risk-sensitivity is mathematically rational. His analysis showed that when survival requires exceeding a threshold, maximizing variance (risk-seeking) can be optimal because it increases the probability of crossing that threshold.
This paper explains why Airbnb's bet-everything strategy was actually the conservative choice - when safe strategies guarantee failure, risky strategies become the path to survival.
Key Findings from Stephens (1981)
- Risk-seeking becomes optimal when average outcome falls below survival threshold
- Variance preference depends on current state relative to threshold
- The logic extends beyond foraging to any threshold-dependent outcome
- Risk-sensitivity is about survival probability, not expected value