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Comparative Statics under Uncertainty with the Monotone Probability Ratio Order Revisited

Author

Listed:
  • Suyeol Ryu

    (Andong National University)

  • Iltae Kim

    (Chonnam National University)

  • Soo-Jong Kim

    (The Board of Audit and Inspection of Korea)

Abstract

This paper proposes a ��left-side monotone likelihood ratio�� (L-MLR) order which is a more restrictive concept than the ��monotone probability ratio�� (MPR) order and generalizes the comparative static result for the MPR change to the non-linear case in the standard one-argument decision model. The L-MLR defines an order on random distribution that lies between ��monotone likelihood ratio�� (MLR) and MPR. Transitivity, however, does not hold for L-MLR and we show that an important relationship exists between the orders, L-MLR and MPR. This paper also shows that an MPR change can always be decomposed into a sequence of L-MLR shifts.

Suggested Citation

  • Suyeol Ryu & Iltae Kim & Soo-Jong Kim, 2010. "Comparative Statics under Uncertainty with the Monotone Probability Ratio Order Revisited," Korean Economic Review, Korean Economic Association, vol. 26, pages 203-222.
    • Handle: RePEc:kea:keappr:ker-20100630-26-1-09
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Left-side monotone likelihood ratio (L-MLR); Monotone probability ratio (MPR); Monotone likelihood ratio (MLR); Non-linear payoff function;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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