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Almost stochastic dominance under inconsistent utility and loss functions

Part of: Distribution theory - Probability Mathematical economics Operations research and management science

Published online by Cambridge University Press:  15 September 2017

Chunling Luo ,
Zhou He  and
Chin Hon Tan
Chunling Luo*
Affiliation:
National University of Singapore
Zhou He*
Affiliation:
National University of Singapore
Chin Hon Tan*
Affiliation:
National University of Singapore
*
* Postal address: Department of Industrial & Systems Engineering, National University of Singapore, Singapore.
* Postal address: Department of Industrial & Systems Engineering, National University of Singapore, Singapore.
* Postal address: Department of Industrial & Systems Engineering, National University of Singapore, Singapore.
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Abstract

Current literature on stochastic dominance assumes utility/loss functions to be the same across random variables. However, decision models with inconsistent utility functions have been proposed in the literature. The use of inconsistent loss functions when comparing between two random variables can also be appropriate under other problem settings. In this paper we generalize almost stochastic dominance to problems with inconsistent utility/loss functions. In particular, we propose a set of conditions that is necessary and sufficient for clear preferences when the utility/loss functions are allowed to vary across different random variables.

Keywords

Stochastic dominancealmost stochastic dominanceutilitylossprobability distribution

MSC classification

Primary: 60E15: Inequalities; stochastic orderings
Secondary: 90B50: Management decision making, including multiple objectives 91B16: Utility theory
Type
Research Papers
Information
Journal of Applied Probability , Volume 54 , Issue 3 , September 2017 , pp. 763 - 772
Copyright
Copyright © Applied Probability Trust 2017 

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