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Supermodular correspondences and comparison of multi-prior beliefs

Author

Listed:
  • Pawel Dziewulski

    () (Department of Economics, University of Sussex, Brighton, UK)

  • John K. H. Quah

    () (Department of Economics, John Hopkins University and Department of Economics, National University of Singapore)

Abstract

Economic decisions often involve maximising an objective whose value is itself the outcome of another optimisation problem. This decision structure arises in multi-output production and choice under uncertainty with multi-prior beliefs. To analyse comparative statics in these models, we introduce a theory of Supermodular correspondences. In particular, we employ this theory to generalise the notion of first order stochastic dominance to multi-prior beliefs, allowing us to characterise conditions under which greater optimism leads to higher action.

Suggested Citation

  • Pawel Dziewulski & John K. H. Quah, 2019. "Supermodular correspondences and comparison of multi-prior beliefs," Working Paper Series 0619, Department of Economics, University of Sussex Business School.
  • Handle: RePEc:sus:susewp:0619
    as

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    File URL: https://www.sussex.ac.uk/webteam/gateway/file.php?name=wps-06-2019.pdf&site=24
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    References listed on IDEAS

    as
    1. Mark Huggett, 2003. "When Are Comparative Dynamics Monotone?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 1-11, January.
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    3. Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Econometrica, Econometric Society, vol. 79(1), pages 47-73, January.
    4. John K.-H Quah, 2007. "The Comparative Statics of Constrained Optimization Problems," Econometrica, Econometric Society, vol. 75(2), pages 401-431, March.
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    6. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
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    Cited by:

    1. Bar Light, 2019. "Stochastic Comparative Statics in Markov Decision Processes," Papers 1904.05481, arXiv.org, revised Jan 2020.

    More about this item

    Keywords

    monotone comparative statics; supermodularity; correspondences; stochastic dominance; multi-output production; ambiguity; dynamic programming;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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