Apportioning of risks via stochastic dominance

• 成果类型: Article
• 署名作者: Eeckhoudt, Louis; Schlesinger, Harris; Tsetlin, Ilia
• 署名单位: University of Alabama System; University of Alabama Tuscaloosa; IESEG School of Management; INSEAD Business School; INSEAD Business School
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2008.11.005
• 发表日期: 2009
• 页码: 994-1003
• 关键词: Downside risk; Precautionary effects; prudence; Risk apportionment; risk aversion; stochastic dominance; Temperance

摘要

Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable (X) over tilde (i) dominates (Y) over tilde (i) via ith-order stochastic dominance for i = M, N. We show that the 50-50 lottery [(X) over tilde (N) + (Y) over tilde (M), (Y) over tilde (N) + (X) over tilde (M)] dominates the lottery [(X) over tilde (N) + (X) over tilde (M), (Y) over tilde (N) + (Y) over tilde (M) 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. (C) 2008 Elsevier Inc. All rights reserved.