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Increasing Risk: Some Direct Constructions

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Author Info
Machina, Mark J
Pratt, John W

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Abstract

This article extends the classic Rothschild-Stiglitz characterization of comparative risk ("increasing risk") in two directions. By adopting a more general definition of "mean preserving spread" (MPS), it provides a direct construction of a sequence of MPS's linking any pair of distributions that are ranked in terms of comparative risk. It also provides a direct, explicit construction of a zero-conditional-mean "noise" variable for any such pair of distributions. Both results are extended to the case of second order stochastic dominance. Copyright 1997 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 14 (1997)
Issue (Month): 2 (March)
Pages: 103-27
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Handle: RePEc:kap:jrisku:v:14:y:1997:i:2:p:103-27

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Web page: http://www.springerlink.com/link.asp?id=100299

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  1. Marco Dall’Aglio & Marco Scarsini, 2000. "Zonoids, Linear Dependence, and Size-Biased Distributions on the Simplex," ICER Working Papers - Applied Mathematics Series 27-2003, ICER - International Centre for Economic Research, revised Jul 2003. [Downloadable!]
  2. André de Palma & Nathalie Picard, 2004. "Route Choice behavior with risk averse users," THEMA Working Papers 2004-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  3. John W. Pratt, 2008. "Some neglected axioms in fair division," Harvard Business School Working Papers 08-094, Harvard Business School. [Downloadable!]
  4. Alain Chateauneuf & Michèle Cohen & Isaac Meilijson, 2004. "Four notions of mean preserving increase in risk, risk attitudes and applications to the Rank-Dependent Expected Utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00212281_v1, HAL. [Downloadable!]
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  5. Donald Keenan & Donald Rudow & Arthur Snow, 2008. "Risk preferences and changes in background risk," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 139-152, April. [Downloadable!] (restricted)
  6. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June. [Downloadable!]
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