Weighted Utility and Optimism/Pessimism: A Decision-Theoretic Foundation of Various Stochastic Dominance Orders

Tao Wang and Ehud Lehrer

American Economic Journal: Microeconomics, 2024, vol. 16, issue 1, 210-23

Abstract: We show that a probability distribution likelihood ratio dominates another distribution if and only if, for every weighted utility function, the former is preferred over the latter. Likewise, a probability distribution hazard rate (or reverse hazard rate) dominates another distribution if and only if, the former is preferred by every optimistic (or pessimistic) decision maker.

JEL-codes: D11 D83 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/mic.20220350

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