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Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance

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Denuit, Michel [UCL] Liu, Liqun [Texas A and M University]

Fishburn and Vickson (Stochastic dominance: an approach to decision-making under risk, Lexington Books, D.C. Heath and Company, Lexington, pp. 39–113, 1978) showed that, when applied to random alternatives with an equal mean, 3rd-degree and decreasing absolute risk aversion stochastic dominances represent equivalent rules. The present paper generalizes this result to higher degrees. Specifically, higher-degree stochastic dominance rules and common preference by all decision makers with decreasing higher-order absolute risk aversion are shown to coincide under appropriate constraints on the respective moments of the random variables to be compared.

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès restreint
Publication date 2014
Language Anglais
Journal information "Theory and Decision : an international journal for multidisciplinary advances in decision sciences" - Vol. 76, no. 2, p. 287-295 (2014)
Peer reviewed yes
Publisher Springer New York LLC ((United States) New York)
issn 0040-5833
e-issn 1573-7187
Publication status Publié
Affiliation UCL - SSH/LIDAM/ISBA - Institut de Statistique, Biostatistique et Sciences Actuarielles
Keywords Rate of substitution ; Decreasing risk aversion ; Stochastic dominance ; Risk apportionment
Links
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Bibliographic reference Denuit, Michel ; Liu, Liqun. Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance. In: Theory and Decision : an international journal for multidisciplinary advances in decision sciences, Vol. 76, no. 2, p. 287-295 (2014)
Permanent URL http://hdl.handle.net/2078.1/139530