Stochastic Dominance under the Nonlinear Expected Utilities

Xinling Xiao

Mathematical Problems in Engineering, 2014, vol. 2014, 1-6

Abstract:

In 1947, von Neumann and Morgenstern introduced the well-known expected utility and the related axiomatic system (see von Neumann and Morgenstern (1953)). It is widely used in economics, for example, financial economics. But the well-known Allais paradox (see Allais (1979)) shows that the linear expected utility has some limitations sometimes. Because of this, Peng proposed a concept of nonlinear expected utility (see Peng (2005)). In this paper we propose a concept of stochastic dominance under the nonlinear expected utilities. We give sufficient conditions on which a random choice stochastically dominates a random choice under the nonlinear expected utilities. We also provide sufficient conditions on which a random choice strictly stochastically dominates a random choice under the sublinear expected utilities.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:713738

DOI: 10.1155/2014/713738

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