Generalized Almost Stochastic Dominance

Ilia Tsetlin (), Robert L. Winkler (), Rachel Huang and Larry Y. Tzeng ()
Additional contact information
Ilia Tsetlin: INSEAD, Singapore 138676
Robert L. Winkler: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Larry Y. Tzeng: Department of Finance, National Taiwan University, Taipei 106, Taiwan

Operations Research, 2015, vol. 63, issue 2, 363-377

Abstract: Almost stochastic dominance allows small violations of stochastic dominance rules to avoid situations where most decision makers prefer one alternative to another but stochastic dominance cannot rank them. While the idea behind almost stochastic dominance is quite promising, it has not caught on in practice. Implementation issues and inconsistencies between integral conditions and their associated utility classes contribute to this situation. We develop generalized almost second-degree stochastic dominance and almost second-degree risk in terms of the appropriate utility classes and their corresponding integral conditions, and extend these concepts to higher degrees. We address implementation issues and show that generalized almost stochastic dominance inherits the appealing properties of stochastic dominance. Finally, we define convex generalized almost stochastic dominance to deal with risk-prone preferences. Generalized almost stochastic dominance could be useful in decision analysis, empirical research (e.g., in finance), and theoretical analyses of applied situations.

Keywords: decision analysis; stochastic dominance; utility; risk; probability; distribution comparisons (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2014.1340 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:63:y:2015:i:2:p:363-377

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().