IDEAS home Printed from https://ideas.repec.org/p/mse/cesdoc/14054.html
   My bibliography  Save this paper

Stochastic dominance, risk and disappointment: a synthesis

Author

Listed:

Abstract

Although it is endowed with many interesting properties, the theory of decision-making under risk by Loomes and Sugden [1986] has never been given an axiomatics. In this paper, we make up for this omission because their lottery-dependent functional is endowed with many interesting properties to which little attention has been paid up to now. In particular, investors whose preferences are represented by the functional are rational in that (a) they actually behave differently if they are risk averse or risk prone, (b) risk is defined in a consistent way with risk aversion, (c) the functional is but the opposite to a convex measure of risk (Föllmer ans Schied [2002]) when constant marginal utility is assumed and (d) violations of the second-order stochastic dominance property are allowed for when "utils" are substituted for monetary values. Moreover, the partial weak order induced by stochastic dominance over utils is as "close" to the weak order of preferences as possible and utility functions may be elicited through experimental testing

Suggested Citation

  • Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:14054
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
    3. Joao L. Becker & Rakesh K. Sarin, 1987. "Lottery Dependent Utility," Management Science, INFORMS, vol. 33(11), pages 1367-1382, November.
    4. Thierry Chauveau & Nicolas Nalpas, 2010. "Disappointment Models: an axiomatic approach," Documents de travail du Centre d'Economie de la Sorbonne 10102, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Graham Loomes & Robert Sugden, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(2), pages 271-282.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thierry Chauveau, 2016. "Stochastic dominance, risk and disappointment: a synthesis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01025102, HAL.
    2. Thierry Chauveau, 2012. "Subjective risk and disappointment," Post-Print halshs-00747902, HAL.
    3. Thierry Chauveau, 2012. "Subjective risk and disappointment," Documents de travail du Centre d'Economie de la Sorbonne 12063rr, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2013.
    4. Thierry Chauveau, 2012. "Subjective risk and disappointment," Documents de travail du Centre d'Economie de la Sorbonne 12063r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Dec 2012.
    5. William S. Neilson, 2000. "Victory and Defeat in a Model of Behavior in Games and Toward Risk," Econometric Society World Congress 2000 Contributed Papers 0690, Econometric Society.
    6. Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054rr, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jan 2016.
    7. Cillo, Alessandra & Delquié, Philippe, 2014. "Mean-risk analysis with enhanced behavioral content," European Journal of Operational Research, Elsevier, vol. 239(3), pages 764-775.
    8. Thierry Chauveau, 2014. "Stochastic dominance, risk and disappointment: a synthesis," Documents de travail du Centre d'Economie de la Sorbonne 14054r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jul 2015.
    9. Thierry Chauveau, 2012. "Subjective risk and disappointment," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00747902, HAL.
    10. Thierry Chauveau, 2016. "Stochastic dominance, risk and disappointment: a synthesis," Post-Print halshs-01025102, HAL.
    11. Thierry Chauveau, 2012. "Subjective risk and disappointment," Documents de travail du Centre d'Economie de la Sorbonne 12063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    12. Upravitelev, A., 2023. "Neoclassical roots of behavioral economics," Journal of the New Economic Association, New Economic Association, vol. 58(1), pages 110-140.
    13. Jean-Michel Benkert, 2015. "Bilateral trade with loss-averse agents," ECON - Working Papers 188, Department of Economics - University of Zurich, revised Jul 2022.
    14. Qin, Jie, 2015. "A model of regret, investor behavior, and market turbulence," Journal of Economic Theory, Elsevier, vol. 160(C), pages 150-174.
    15. Sliwka, Dirk & Werner, Peter, 2016. "How Do Agents React to Dynamic Wage Increases? An Experimental Study," IZA Discussion Papers 9855, Institute of Labor Economics (IZA).
    16. Enrico G. De Giorgi & Thierry Post, 2011. "Loss Aversion with a State-Dependent Reference Point," Management Science, INFORMS, vol. 57(6), pages 1094-1110, June.
    17. Joseph Teal & Petko Kusev & Renata Heilman & Rose Martin & Alessia Passanisi & Ugo Pace, 2021. "Problem Gambling ‘Fuelled on the Fly’," IJERPH, MDPI, vol. 18(16), pages 1-14, August.
    18. George Wu, 1999. "Anxiety and Decision Making with Delayed Resolution of Uncertainty," Theory and Decision, Springer, vol. 46(2), pages 159-199, April.
    19. Ivan Moscati, 2022. "Behavioral and heuristic models are as-if models too — and that’s ok," BAFFI CAREFIN Working Papers 22177, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    20. Epper, Thomas & Fehr-Duda, Helga, 2017. "A Tale of Two Tails: On the Coexistence of Overweighting and Underweighting of Rare Extreme Events," Economics Working Paper Series 1705, University of St. Gallen, School of Economics and Political Science.

    More about this item

    Keywords

    Disappointment; risk-aversion; expected utility; risk premium; stochastic dominance; subjective risk;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mse:cesdoc:14054. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucie Label (email available below). General contact details of provider: https://edirc.repec.org/data/cenp1fr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.