Environmental constraints and sigmoid utility: implications for value, risk sensitivity, and social status

Abstract

Friedman and Savage [Journal of Political Economy 4 (1948) 279] proposed sigmoid utility theory to model the relationship between social class and risk sensitivity. Their proposal has not been explicitly modeled to allow for full testing of the concept. We argue that sigmoid utility arises naturally from boundary conditions imposed by finite environmental resources that engender competition. We also present a sigmoid formulation and examine its empirical warrant by considering economic data from anthropological, historical, and sociological cases studies. Standard risk sensitivity measures such as Arrow–Pratt and downside risk aversion provide expectations for which individuals are most risk prone. Insights from prospect theory indicate under what conditions sigmoid utility may be most useful. We consider the implications of environmental constraint in the context of the sigmoid model as an explanation for the nature of political turmoil during the collapse of Maya civilization (ca. AD 850), we consider the role lack of constraint played in the American Revolution, and we explore how sigmoid utility can enrich our understanding of contemporary American voting behavior.