Multivariate concave and convex stochastic dominance

Michel Denuit (), Louis Eeckhoudt, Ilia Tsetlin () and Robert L. Winkler ()
Additional contact information
Michel Denuit: Université catholique de Louvain, Institut des Sciences Actuarielles & Institut de Statistique, B-1348 Louvain-la-Neuve, Belgium
Ilia Tsetlin: INSEAD, Singapore
Robert L. Winkler: Fuqua School of Business, Duke University, Durham, USA

No 2010044, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Stochastic dominance permits a partial ordering of alternatives (probability distributions on consequences) based only on partial information about a decision maker’s utility function. Univariate stochastic dominance has been widely studied and applied, with general agreement on classes of utility functions for dominance of different degrees. Extensions to the multivariate case have received less attention and have used different classes of utility functions, some of which require strong assumptions about utility. We investigate multivariate stochastic dominance using a class of utility functions that is consistent with a basic preference assumption, can be related to well-known characteristics of utility, and is a natural extension of the stochastic order typically used in the univariate case. These utility functions are multivariate risk averse, and reversing the preference assumption allows us to investigate stochastic dominance for utility functions that are multivariate risk seeking. We provide insight into these two contrasting forms of stochastic dominance, develop some criteria to compare probability distributions (hence alternatives) via multivariate stochastic dominance, and illustrate how this dominance could be used in practice to identify inferior alternatives. Connections between our approach and dominance using different stochastic orders are discussed.

Keywords: decision analysis: multiple criteria, risk; group decisions; utility/preference: multiattribute utility, stochastic dominance, stochastic orders (search for similar items in EconPapers)
Date: 2010-07-01
New Economics Papers: this item is included in nep-sea and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2010.html (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:cor:louvco:2010044

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().