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Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance

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  • Michel Denuit
  • Liqun Liu

Abstract

Fishburn and Vickson (Stochastic dominance: an approach to decision-making under risk, Lexington Books, D.C. Heath and Company, Lexington, pp. 39–113, 1978 ) showed that, when applied to random alternatives with an equal mean, 3rd-degree and decreasing absolute risk aversion stochastic dominances represent equivalent rules. The present paper generalizes this result to higher degrees. Specifically, higher-degree stochastic dominance rules and common preference by all decision makers with decreasing higher-order absolute risk aversion are shown to coincide under appropriate constraints on the respective moments of the random variables to be compared. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Michel Denuit & Liqun Liu, 2014. "Decreasing higher-order absolute risk aversion and higher-degree stochastic dominance," Theory and Decision, Springer, vol. 76(2), pages 287-295, February.
    • Handle: RePEc:kap:theord:v:76:y:2014:i:2:p:287-295
    DOI: 10.1007/s11238-013-9374-3
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    References listed on IDEAS

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