Apportioning of risks via stochastic dominance

A-Tier
Journal: Journal of Economic Theory
Year: 2009
Volume: 144
Issue: 3
Pages: 994-1003

Score contribution per author:

1.341 = (α=2.01 / 3 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable dominates via ith-order stochastic dominance for i=M,N. We show that the 50-50 lottery dominates the lottery via (N+M)th-order stochastic dominance. The basic idea is that a decision maker exhibiting (N+M)th-order stochastic dominance preference will allocate the state-contingent lotteries in such a way as not to group the two "bad" lotteries in the same state, where "bad" is defined via ith-order stochastic dominance. In this way, we can extend and generalize existing results about risk attitudes. This lottery preference includes behavior exhibiting higher-order risk effects, such as precautionary effects and tempering effects.

Technical Details

RePEc Handle
repec:eee:jetheo:v:144:y:2009:i:3:p:994-1003
Journal Field
Theory
Author Count
3
Added to Database
2026-01-25