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A Note on Almost Stochastic Dominance

Author

Listed:
  • Guo, Xu
  • Zhu, Xuehu
  • Wong, Wing-Keung
  • Zhu, Lixing

Abstract

To satisfy the property of expected-utility maximization, Tzeng et al. (2012) modify the almost second-degree stochastic dominance proposed by Leshno and Levy (2002) and define almost higher-degree stochastic dominance. In this note, we further investigate the relevant properties. We define an almost third-degree stochastic dominance in the same way that Leshno and Levy (2002) define second-degree stochastic dominance and show that Leshno and Levy's (2002) almost stochastic dominance has the hierarchy property but not expected-utility maximization. In contrast, Tzeng et al.'s (2012) definition has the property of expected-utility maximization but not the hierarchy property. This phenomenon also holds for higher-degree stochastic dominance for these two concepts. Thus, the findings in this paper suggest that Leshno and Levy's (2002) definitions of ASSD and ATSD might be better than those defined by Tzeng et al. (2012) if the hierarchy property is considered to be an important issue.

Suggested Citation

  • Guo, Xu & Zhu, Xuehu & Wong, Wing-Keung & Zhu, Lixing, 2013. "A Note on Almost Stochastic Dominance," MPRA Paper 44365, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:44365
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    References listed on IDEAS

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    1. Whitmore, G A, 1970. "Third-Degree Stochastic Dominance," American Economic Review, American Economic Association, vol. 60(3), pages 457-459, June.
    2. Denuit, M. & Eeckhoudt L., 2010. "A general index of absolute risk attitude," LIDAM Discussion Papers ISBA 2010013, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    3. Larry Y. Tzeng & Rachel J. Huang & Pai-Ta Shih, 2013. "Revisiting Almost Second-Degree Stochastic Dominance," Management Science, INFORMS, vol. 59(5), pages 1250-1254, May.
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    More about this item

    Keywords

    Almost stochastic dominance; expected-utility maximization; hierarchy of stochastic dominance;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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