Arbeitspapier
Apportioning of risks via stochastic dominance
Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable Xi dominates Yi via ith-order stochastic dominance for i = M,N. We show that the 50-50 lottery [XN + YM, YN + XM] dominates the lottery [XN + XM, YN + YM] 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.
- Sprache
-
Englisch
- Erschienen in
-
Series: CESifo Working Paper ; No. 2467
- Klassifikation
-
Wirtschaft
Criteria for Decision-Making under Risk and Uncertainty
- Thema
-
Downside risk
precautionary effects
prudence
risk apportionment
risk aversion
stochastic dominance
temperance
Entscheidung bei Unsicherheit
Entscheidung bei Risiko
Stochastischer Prozess
Risikoaversion
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Eeckhoudt, Louis
Schlesinger, Harris
Tsetlin, Ilia
- Ereignis
-
Veröffentlichung
- (wer)
-
Center for Economic Studies and ifo Institute (CESifo)
- (wo)
-
Munich
- (wann)
-
2008
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Eeckhoudt, Louis
- Schlesinger, Harris
- Tsetlin, Ilia
- Center for Economic Studies and ifo Institute (CESifo)
Entstanden
- 2008
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