  We propose a new interpretation of the quasar luminosity function (LF),
derived from physically motivated models of quasar lifetimes and light curves.
In our picture, quasars evolve rapidly and their lifetime depends on both their
instantaneous and peak luminosities. We study this model using simulations of
galaxy mergers that successfully reproduce a wide range of observed quasar
phenomena. With lifetimes inferred from the simulations, we deconvolve the
observed quasar LF from the distribution of peak luminosities, and show that
they differ qualitatively, unlike for the simple models of quasar lifetimes
used previously. We find that the bright end of the LF traces the intrinsic
peak quasar activity, but that the faint end consists of quasars which are
either undergoing exponential growth to much larger masses and higher
luminosities, or are in sub-Eddington quiescent states going into or coming out
of a period of peak activity. The 'break' in the LF corresponds directly to the
maximum in the intrinsic distribution of peak luminosities, which falls off at
both brighter and fainter luminosities. Our interpretation of the quasar LF
provides a physical basis for the nature and slope of the faint-end
distribution, as well as the location of the break luminosity.
