Modelling agents’ preferences in complete markets by second order stochastic dominance
Dana, Rose-Anne; Meilijson, Isaac (2003), Modelling agents’ preferences in complete markets by second order stochastic dominance. https://basepub.dauphine.fr/handle/123456789/6105
TypeDocument de travail / Working paper
Series titleCahiers du CEREMADE
MetadataShow full item record
Abstract (EN)A theory of individual decision and a general equilibrium theory in complete markets are provided, for the case of infinite state space when incomplete preferences are modelled by second order stochastic dominance (SSD). While, unlike the situation in the finite state space case, the demand of a strictly SSD averse agent may not be implementable as a vNM demand nor an SSD equilibrium as a vNM equilibrium, the set of Pareto-optimal allocations for SSD coincides, as in the finite state space case, with the set of Pareto-optimal allocations when agents are EU maximizers with increasing strictly concave utility indices.SSD is also used to give microfoundations to law-invariant risk measures.
Subjects / KeywordsSecond order stochastic dominance; comonotone risk sharing; Law-invariant risk measures
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