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New characterizations of increasing risk

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  • 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
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    References listed on IDEAS

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    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.
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    Cited by:

    1. Christophe Muller, 2019. "Social Shock Sharing and Stochastic Dominance," Working Papers halshs-02005735, HAL.

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