(U,V) ordering and a duality theorem for risk aversion and Lorenz type orderings

Alessandra Giovagnoli and Henry P. Wynn

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There is a duality theory connecting certain stochastic orderings between cumulative distribution functions F1 , F2 and stochastic orderings between their inverses F −1 , F −1. This underlies some theories of utility in the case of the cdf and deprivation indices in the case of the inverse. Under certain conditions there is an equivalence between the two theories. An example is the equivalence between second order stochastic dominance and the Lorenz ordering. This duality is generalised to include the case where there is “distortion” of the cdf of the form v(F ) and also of the inverse. A comprehensive duality theorem is presented in a form which includes the distortions and links the duality to the parallel theories of risk and deprivation indices. It is shown that some well-known examples are special cases of the results, including some from the Yaari social welfare theory and the theory of majorization.

Keywords: income inequality; prospect theory; stochastic orderings; utility theory; Yaari’s functionals (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2012-04-10
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Citations: View citations in EconPapers (1)

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