IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v69y2017icp7-11.html
   My bibliography  Save this article

New characterizations of increasing risk

Author

Listed:
  • Brown, David P.

Abstract

I present alternative constructions of gambles with greater risk. Rothschild and Stiglitz (1970) demonstrate that gamble Y has greater risk than X when Y is equal in distribution to X+Z, where Z is noise. Gambles called positive-upper-conditional-mean errors are introduced, and I show that Y has greater risk than X when Z is a PUCME and is not noise. Simple examples demonstrate that the set of PUCMEs is strictly greater than the set of gambles that are noise.

Suggested Citation

  • Brown, David P., 2017. "New characterizations of increasing risk," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 7-11.
    • Handle: RePEc:eee:mateco:v:69:y:2017:i:c:p:7-11
    DOI: 10.1016/j.jmateco.2016.12.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304406816302907
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmateco.2016.12.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    2. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294, National Bureau of Economic Research, Inc.
    3. Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1329-1344.
    4. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    5. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2004. "Search and Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 119(2), pages 299-333, December.
    6. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
    7. Blum, Jurg, 1999. "Do capital adequacy requirements reduce risks in banking?," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 755-771, May.
    8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    9. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    10. Erin Baker, 2006. "Increasing Risk and Increasing Informativeness: Equivalence Theorems," Operations Research, INFORMS, vol. 54(1), pages 26-36, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuanying Guan & Muqiao Huang & Ruodu Wang, 2024. "A new characterization of second-order stochastic dominance," Papers 2402.13355, arXiv.org, revised Sep 2024.
    2. Christophe Muller, 2019. "Social Shock Sharing and Stochastic Dominance," Working Papers halshs-02005735, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kiyohiko G. Nishimura & Hiroyuki Ozaki, 2001. "Search under the Knightian Uncertainty," CIRJE F-Series CIRJE-F-112, CIRJE, Faculty of Economics, University of Tokyo.
    2. Iwaki, Hideki & Osaki, Yusuke, 2017. "Comparative statics and portfolio choices under the phantom decision model," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 1-8.
    3. Christian Gollier & Miles S. Kimball, 2018. "New methods in the classical economics of uncertainty: comparing risks," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 5-23, May.
    4. Merton, Robert, 1990. "Capital market theory and the pricing of financial securities," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 11, pages 497-581, Elsevier.
    5. repec:eee:labchp:v:2:y:1986:i:c:p:849-919 is not listed on IDEAS
    6. Carole Bernard & Gero Junike & Thibaut Lux & Steven Vanduffel, 2024. "Cost-efficient payoffs under model ambiguity," Finance and Stochastics, Springer, vol. 28(4), pages 965-997, October.
    7. Erin Baker, 2009. "Optimal Policy under Uncertainty and Learning about Climate Change: A Stochastic Dominance Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(5), pages 721-747, October.
    8. Markus Huggenberger & Peter Albrecht, 2022. "Risk pooling and solvency regulation: A policyholder's perspective," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(4), pages 907-950, December.
    9. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2004. "Search and Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 119(2), pages 299-333, December.
    10. Izhakian, Yehuda & Yermack, David, 2017. "Risk, ambiguity, and the exercise of employee stock options," Journal of Financial Economics, Elsevier, vol. 124(1), pages 65-85.
    11. Laura J. Kornish & Ralph L. Keeney, 2008. "Repeated Commit-or-Defer Decisions with a Deadline: The Influenza Vaccine Composition," Operations Research, INFORMS, vol. 56(3), pages 527-541, June.
    12. Yehuda Izhakian & David Yermack & Jaime F. Zender, 2022. "Ambiguity and the Tradeoff Theory of Capital Structure," Management Science, INFORMS, vol. 68(6), pages 4090-4111, June.
    13. Neus, Werner, 2014. "Eigenkapitalnormen, Boni und Risikoanreize in Banken," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 68(2), pages 92-107.
    14. De los Santos, Babur & Kim, In Kyung & Lubensky, Dmitry, 2018. "Do MSRPs decrease prices?," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 429-457.
      • Babur De los Santos & In Kyung Kim & Dmitry Lubensky, 2013. "Do MSRPs Decrease Prices?," Working Papers 2013-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    15. Hooi Hooi Lean & Michael McAleer & Wing-Keung Wong, 2013. "Risk-averse and Risk-seeking Investor Preferences for Oil Spot and Futures," Documentos de Trabajo del ICAE 2013-31, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised Aug 2013.
    16. Keller, Godfrey & Novák, Vladimír & Willems, Tim, 2019. "A note on optimal experimentation under risk aversion," Journal of Economic Theory, Elsevier, vol. 179(C), pages 476-487.
    17. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
    18. Jewitt, Ian & Mukerji, Sujoy, 2017. "Ordering ambiguous acts," Journal of Economic Theory, Elsevier, vol. 171(C), pages 213-267.
    19. Kocourek, Pavel & Steiner, Jakub & Stewart, Colin, 0. "Boundedly rational demand," Theoretical Economics, Econometric Society.
    20. Gaganis, Chrysovalantis & Lozano-Vivas, Ana & Papadimitri, Panagiota & Pasiouras, Fotios, 2020. "Macroprudential policies, corporate governance and bank risk: Cross-country evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 126-142.
    21. Dmitry Lubensky, 2017. "A model of recommended retail prices," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 358-386, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:69:y:2017:i:c:p:7-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.