A Tale of Two Tails: An Alternative Characterization of Comparative Risk

Michael Landsberger and Isaac Meilijson

Journal of Risk and Uncertainty, 1990, vol. 3, issue 1, 65-82

Abstract: A characterization of comparative risk, parallel to but more restrictive than the Rothschild-Stiglitz (1970) characterization, is developed. As in Rothschild and Stiglitz, we develop a four-way characterization that consists of generating processes (a noise condition and generation by a sequence of special mean-preserving spreads), integral conditions, and preferences. The building blocks of this new order, Mean-preserving increases in risk about v, where v is any constant, are mean-preserving spreads whose centers have a nonempty intersection. If this intersection contains the mean of the distribution, the induced order, or mean-preserving increase in risk about the mean, conveys a particularly meaningful notion of an increase in risk as a buildup of the tails of the distribution. Copyright 1990 by Kluwer Academic Publishers

Date: 1990
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