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

Michel Denuit () and Liqun Liu ()

Theory and Decision, 2014, vol. 76, issue 2, 287-295

Abstract: 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. Copyright Springer Science+Business Media New York 2014

Keywords: Rate of substitution; Decreasing risk aversion; Stochastic dominance; Risk apportionment (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11238-013-9374-3

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