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Stochastic dominance representation of optimistic belief: Theory and applications

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  • Osaki, Yusuke
  • Quiggin, John

Abstract

This note gives a stochastic dominance representation of more optimistic belief in rank dependent expected utility. Applying this observation, we can demonstrate the effect of more optimistic belief on economic decisions and equilibria under risk making comparative static analysis.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 101 (2008)
Issue (Month): 3 (December)
Pages: 275-278

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Handle: RePEc:eee:ecolet:v:101:y:2008:i:3:p:275-278

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Comparative statics Optimistic belief Rank dependent expected utility Stochastic dominance;

References

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  1. Han Bleichrodt & Louis Eeckhoudt, 2005. "Saving under rank-dependent utility," Economic Theory, Springer, vol. 25(2), pages 505-511, 02.
  2. Ormiston Michael B. & Schlee Edward E., 1993. "Comparative Statics under Uncertainty for a Class of Economic Agents," Journal of Economic Theory, Elsevier, vol. 61(2), pages 412-422, December.
  3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  4. Schlee, Edward E, 1994. "The Preservation of Multivariate Comparative Statics in Nonexpected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 9(3), pages 257-72, December.
  5. Ryan, Matthew J., 2006. "Risk aversion in RDEU," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 675-697, September.
  6. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  7. Masamitsu Ohnishi & Yusuke Osaki, 2006. "Comparative Risk Aversion under Background Risks Revisited," Discussion Papers in Economics and Business 06-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  8. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  9. Ohnishi, Masamitsu & Osaki, Yusuke, 2006. "The comparative statics on asset prices based on bull and bear market measure," European Journal of Operational Research, Elsevier, vol. 168(2), pages 291-300, January.
  10. John Quiggin & Robert G. Chambers, 2004. "Supermodularity and the comparative statics of risk," Risk & Uncertainty Working Papers WPR04_5, Risk and Sustainable Management Group, University of Queensland.
  11. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
  12. Quiggin, John, 1991. " Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-50, December.
  13. Hong, Chew Soo & Karni, Edi & Safra, Zvi, 1987. "Risk aversion in the theory of expected utility with rank dependent probabilities," Journal of Economic Theory, Elsevier, vol. 42(2), pages 370-381, August.
  14. Yusuke Osaki, 2005. "Dependent background risks and asset prices," Economics Bulletin, AccessEcon, vol. 4(8), pages 1-8.
  15. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  16. Yusuke Osaki, 2005. "Dependent Background Risks and Asset Prices," Discussion Papers in Economics and Business 05-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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