Probabilistic sophistication, second order stochastic dominance and uncertainty aversion

Simone Cerreia-Vioglio, Fabio Maccheroni, Massimo Marinacci and Luigi Montrucchio

Journal of Mathematical Economics, 2012, vol. 48, issue 5, 271-283

Abstract: We study the interplay of probabilistic sophistication, second order stochastic dominance and uncertainty aversion, three fundamental notions in choice under uncertainty. In particular, our main result, Theorem 2, characterizes uncertainty averse preferences that are probabilistically sophisticated, as well as uncertainty averse preferences that satisfy second order stochastic dominance. As a byproduct, Proposition 2 highlights a fundamental tension between probabilistic sophistication/second order stochastic dominance and uncertainty aversion in the presence of nontrivial unambiguous events.

Keywords: Model misspecification; Probabilistic sophistication; Second order stochastic dominance; Subjective expected utility; Unambiguous events; Uncertainty aversion (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Working Paper: Probabilistic Sophistication, Second Order Stochastic Dominance, and Uncertainty Aversion (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:48:y:2012:i:5:p:271-283

DOI: 10.1016/j.jmateco.2012.05.005

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