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Mean-preserving Portfolio Dominance

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  • Michael Landsberger
  • Isaac Meilijson

Abstract

Consider risk-averse agents with utility functions U and V holding portfolios composed of the same two (risky and riskless) assets. Then, V is (Arrow) more risk averse if in all such portfolios V invests less in the risky asset. A natural extension of this analysis of attitudes towards risk to risk itself is to establish a relation between distributions which is necessary and sufficient to induce such investment patterns in the class of all risk-averse agents. This characterization is established in this paper for distributions with equal means. Second Degree Dominance performs a similar role for the notion of ‘more risk averse’ introduced by Pratt but it is too weak for the Arrow concept.

Suggested Citation

  • Michael Landsberger & Isaac Meilijson, 1993. "Mean-preserving Portfolio Dominance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 479-485.
    • Handle: RePEc:oup:restud:v:60:y:1993:i:2:p:479-485.
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    File URL: http://hdl.handle.net/10.2307/2298068
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    Citations

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    Cited by:

    1. Elyès Jouini & Clotilde Napp, 2009. "Cognitive biases and the representative agent," Working Papers halshs-00488570, HAL.
    2. Gollier, Christian & Schlesinger, Harris, 2002. "Changes in risk and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 747-760, May.
    3. Heller, Yuval & Schreiber, Amnon, 2020. "Short-term investments and indices of risk," Theoretical Economics, Econometric Society, vol. 15(3), July.
    4. Diego Nocetti & Elyès Jouini & Clotilde Napp, 2008. "Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience," Management Science, INFORMS, vol. 54(10), pages 1822-1826, October.
    5. repec:dau:papers:123456789/2319 is not listed on IDEAS
    6. Machnes, Yaffa, 1995. "Deductible insurance and production," Insurance: Mathematics and Economics, Elsevier, vol. 17(2), pages 119-123, October.
    7. 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.
    8. repec:dau:papers:123456789/198 is not listed on IDEAS
    9. Gollier, Christian & Schlesinger, Harris, 1996. "Portfolio choice under noisy asset returns," Economics Letters, Elsevier, vol. 53(1), pages 47-51, October.
    10. Elyès Jouini & Clotilde Napp, 2012. "Behavioral biases and the representative agent," Theory and Decision, Springer, vol. 73(1), pages 97-123, July.
    11. Enrico G. De Giorgi & Ola Mahmoud, 2016. "Diversification preferences in the theory of choice," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 39(2), pages 143-174, November.
    12. Jouini, E. & Napp, C., 2008. "On Abel's concept of doubt and pessimism," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3682-3694, November.
    13. Yuval Heller & Amnon Schreiber, 2020. "Short-Term Investments and Indices of Risk," Papers 2005.06576, arXiv.org.
    14. Ormiston, Michael B. & E. Schlee, Edward, 1999. "Comparative statics tests between decision models under risk," Journal of Mathematical Economics, Elsevier, vol. 32(2), pages 145-166, October.

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