Transitivity is the assumption that if a person prefers A to B and B to C, then that person should prefer A to C. This article explores a paradigm in which Birnbaum, Patton and Lott (1999) thought people might be systematically intransitive. Many undergraduates choose C = ($96, .85; $90, .05; $12, .10) over A = ($96, .9; $14, .05; $12, .05), violating dominance. Perhaps people would detect dominance in simpler choices, such as A versus B = ($96, .9; $12, .10) and B versus C, and yet continue to violate it in the choice between A and C, which would violate transitivity. In this study we apply a true and error model to test intransitive preferences predicted by a partially effective editing mechanism. The results replicated previous findings quite well; however, the true and error model indicated that very few, if any, participants exhibited true intransitive preferences. In addition, violations of stochastic dominance showed a strong and systematic decrease in prevalence over time and violated response independence, thus violating key assumptions of standard random preference models for analysis of transitivity.

Sunk costs have been known to elicit violations of expected utility theory, in particular, the independence or cancellation axiom. Separately, violations of the stochastic dominance principle have been demonstrated in various settings despite the fact that descriptive models of choice favored in economics deem such violations irrational. However, it is currently unknown whether sunk costs also yield stochastic dominance violations. In two studies using a tri-colored roulette wheel choice task with non-equiprobable events yet equal payoffs, we observed that those who had sunk costs selected a stochastically dominated option significantly more than did those who had no costs. Moreover, a second study revealed that people chose a stochastically dominated option significantly more when the expected value was low compared to high. A model comparison of psychological explanations demonstrated that theories that incorporate a reference shift of the status quo could predict these sunk cost-based violations of stochastic dominance whereas other models could not.

Preconditioning cattle, a management practice of preparing cattle for feedlots as well as following a vaccination protocol for common diseases, has been shown to add value to cattle by reducing disease incidence and severity, yet it is not universally adopted. We estimated the benefits to a beef system of preconditioning weaned calves versus not preconditioning under stochastic returns. Purchasing preconditioned calves makes economic sense, but market efficiency requires complete information of the health status of the cattle, feedlot performance, along with the right market mechanisms, which may not be available in all markets.

A continuum of stochastic dominance rules, also referred to as fractional stochastic dominance (SD), was introduced by Müller, Scarsini, Tsetlin, and Winkler (2017) to cover preferences from first- to second-order SD. Fractional SD can be used to explain many individual behaviors in economics. In this paper we introduce the concept of fractional pure SD, a special case of fractional SD. We investigate further properties of fractional SD, for example the generating processes of fractional pure SD via $\gamma$ -transfers of probability, Yaari’s dual characterization by utilizing the special class of distortion functions, the separation theorem in terms of first-order SD and fractional pure SD, Strassen’s representation, and bivariate characterization. We also establish several closure properties of fractional SD under quantile truncation, under comonotonic sums, and under distortion, as well as its equivalence characterization. Examples of distributions ordered in the sense of fractional SD are provided.

Farm diversification is mainly driven by risk mitigation effects and economic gains related to complementarities between production activities. By combining these two aspects, we investigate diversification economies in a sample of French mixed sheep farming systems and rank these systems using stochastic dominance criteria. Partially diversified systems (Sheep-Grass, Sheep-Crop, Sheep-Landless) and fully diversified systems (Sheep-Grass-Crop-Landless) were evaluated. We find a high degree of diversification diseconomies in the sheep farming systems considered. The results also indicate that the fully diversified system is driven by its risk-reducing effects (including downside risk exposure) and that Sheep-Crop is the dominant system in terms of risk-adjusted returns.

Defined contribution (DC) pension plans have been gaining ground in the last 10–20 years as the preferred system for many countries and other agencies, both private and public. The central question for a DC plan is how to invest in order to reach the participant's retirement goals. Given the financial illiteracy of the general population, it is common to offer a default policy for members who do not actively make investment choices. Using data from the Chilean system, we discuss an investment model with fixed contribution rates and compare the results with the existing default policy under multiple objectives. Our results indicate that the Chilean default policy has good overall performance, but specific closed-loop policies have a higher probability of achieving desired retirement goals and can reduce the expected shortfall at retirement.

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.

The goal of this research was to determine whether crop management practices could substitute for a herbicide for managing mixed populations of green and yellow foxtail in hard red spring wheat. Crop yield and foxtail growth were measured in two years of field research in North Dakota. Spring wheat yields were as great or greater when early seeding date or 2× seeding rate were substituted for POST diclofop3 at 0.75 kg ai ha−1 for managing foxtail in spring wheat. Yield of spring wheat competing with foxtails was greater for the high seeding rate (2× = 270 kg ha−1) than both the normal (1× = 130 kg ha−1) and low (0.5× = 70 kg ha−1) seeding rates for early or middle seeding dates, but not for the late seeding date. For both early and middle seeding dates, wheat yield at the 2×seeding rate without diclofop was equal to or greater than that of the 1× seeding rate with diclofop. Late-seeded wheat did not yield well in competition with dense foxtail stands for any treatment combination. Early and middle seeding dates favored the relative increase of green foxtail over yellow foxtail in wheat, whereas late seeding favored yellow foxtail over green foxtail. Economic analysis demonstrated that early seeding date was the most critical factor in determining the stochastic dominance of treatments without diclofop over treatments with diclofop. Seeding rate was much less important than seeding date in determining the ranking of treatments in stochastic dominance analysis.

Evaluation of economic outcome associated with a given weed management system is an important component in the decision-making process within crop production systems. The objective of this research was to investigate how risk-efficiency criteria could be used to improve herbicide-based weed management decision making, assuming different risk preferences among growers. Data were obtained from existing weed management trials in corn conducted at the University of Minnesota Southern Research and Outreach Center at Waseca. Weed control treatments represented a range of practices including one-pass soil-applied, one-pass postemergence, and sequential combinations of soil and postemergence herbicide application systems. Analysis of risk efficiency across 23 herbicide-based weed control treatments was determined with the mean variance and stochastic dominance techniques. We show how these techniques can result in different outcomes for the decision maker, depending on risk attitudes. For example, mean variance and stochastic dominance techniques are used to evaluate risk associated with one- vs. two-pass herbicide treatments with and without cultivation. Based on these analyses, it appears that a one-pass system is preferred by a risk-averse grower. However, we argue that this may not be the best option considering potential changes in weed emergence patterns, application timing concerns, etc. The techniques for economic analysis of weed control data outlined in this article will help growers match herbicide-based weed management systems to their own production philosophies based on economic risk.

Vegetable production can offer a high-valued cash crop alternative. While returns may be high, vegetables are perceived to have more risk than conventional row crops. This study used stochastic dominance analysis to evaluate terminal market price risk for four vegetable crops across five market locations. Results from the analysis identify differences in efficient market selection depending on the form which price risk follows. While vegetables as a whole are considered risky, substantial differences in the type of terminal market price variability existed between the commodities.

Contract grazing feeder cattle is an arrangement where cattle owned by one party graze forage produced on land owned by another party. The forage producer is paid a fixed price per pound gained. Stochastic dominance analysis is used to compare contract grazing and the more traditional system in which the same individual owns both the cattle and land.

This study examined the relationship between debt position and choice of marketing instrument. Specifically, this study employed first and second degree stochastic dominance, and stochastic dominance with respect to a function to determine whether the efficient marketing instrument changes between debt positions. The results indicate that the choice of marketing instrument does vary with debt position in some marketing periods if the decisionmaker is moderately risk averse.

A microcomputer program to perform Generalized Stochastic Dominance (GSD), Quasi-Second Degree Dominance (SSD), and Quasi-First Degree Stochastic Dominance (FSD) is described. The program is designed to run on IBM-compatible personal computers with a Hercules or CGA graphics adapter. It is menu-driven and has options for GSD, quasi-FSD, quasi-SSD, graphics, and calculations of premiums associated with use of dominant distributions.

Cumulative probability distributions of income for management scenarios involving four preharvest marketing strategies are subjected to stochastic dominance analysis to determine risk-efficient sets of strategies for different groups of farmers in North Florida. Results indicate that farmers should behave differently in their choice of marketing strategies according to their risk attitudes. Highly risk-averse farmers should prefer some forward contracting while low risk-averse and risk-loving farmers should prefer cash sales at harvest. Use of the futures markets leads to both higher income and greater risk than forward contracting but lower income and risk than cash sales.

We determined the profitability and risk for spring- and fall-calving beef cows in Tennessee. Simulation models were developed using 19 years of data and considered the seasonality of cattle prices and feed prices for least-cost feed rations to find a distribution of net returns for spring- and fall-calving seasons for two weaning months. Fall calving was more profitable than the spring calving for all feed rations and weaning months. Fall calving was also risk preferred over spring calving for all levels of risk aversion. Higher calf prices at weaning were the primary factor influencing the risk efficiency of fall calving.

Stochastic dominance (SD) is commonly used to rank income distributions and assess social policies. The literature argues that SD is a robust criterion for policy evaluation because it requires minimal knowledge of the social welfare function. We argue that, on the contrary, SD is not a robust criterion. We do this by carefully introducing microfoundations into a model by Chu and Koo (1990) who use SD to provide support to family-planning programs aiming at reducing the fertility of the poor. We show that fertility restrictions are generally detrimental for both individual and social welfare in spite of the fact that SD holds. Our findings are an application of the Lucas’ Critique.

The effects of cropland slope, distance to surface water, farmers' risk attitudes, and farmers' nitrogen (N) fertilizer applications on potential N delivery to streams and costs of reducing N delivery were evaluated for a representative Virginia peanut-cotton farm. Target MOTAD and generalized stochastic dominance were used to select preferred plans for different levels of risk aversion. Costs of reducing N delivery were lower on farms where fields were located close to surface water, where N was overapplied relative to extension fertilizer recommendations, and where the operator was risk averse. Cropland slope had less effect on cost of reducing N delivery relative to other factors.

This paper develops and illustrates the application of a procedure to evaluate and compare the cost effectiveness of alternative crop insurance products for cotton in terms of their effect on expected producer net returns and the variation of net returns. Farm unit-level cotton yields and state-level price distributions are estimated by a multivariate nonnormal parametric modeling procedure and used to simulate the net returns to alternative crop insurance products over a 10-year planning horizon. The ranking of alternative insurance products using third-degree stochastic dominance is presented for Texas cotton producers.