Abstract
Abstract In Chapter 15 we propose an evolutionary framework for optimal portfolio growth theory in which investors subject to environmental pressures allocate their wealth between two assets. Different investor behaviours survive in different environments when considering both absolute wealth and relative wealth between investors. When investors maximize their relative wealth, the Kelly criterion is optimal only under certain conditions, which are identified. The initial relative wealth plays a critical role in determining the deviation of optimal behaviour from the Kelly criterion, regardless of whether the investor is myopic across a single time period or maximizing wealth over an infinite horizon. These results are related to population genetics, and their testable implications using experimental evolution methods are discussed.
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