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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
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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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    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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