New Methods in the Classical Economics of Uncertainty : Comparing Risks 1 Christian GOLLIER Toulouse School of Economics
نویسنده
چکیده
Second-order stochastic dominance answers the question “Under what conditions will all risk-averse agents prefer x̃2 to x̃1?” Consider the following related question: “Under what conditions will all risk-averse agents who prefer lottery x̃1 to a reference lottery ω̃ also prefer lottery x̃2 to that reference lottery?” Each of these two questions is an example of a broad category of questions of great relevance for the economics of risk. The second question is an example of a contingent risk comparison, while the question behind second-order stochastic dominance is an example of a noncontingent risk comparison. The stochastic order arising from a contingent risk comparison is obviously weaker than that arising from the corresponding noncontingent risk comparison, but we show that the two stochastic orders are closely related, so that the answer to a noncontingent risk comparison problem always provides the answer to the corresponding contingent risk comparison problem. In addition to showing the connection between parallel contingent and noncontingent risk comparison problems, we articulate a method for solving both kinds of problems using the “basis” approach. The basis approach has often been used implicitly, but we argue that there is value to making its use explicit, particularly in indicating which new, previously unsolved problems can readily be solved by the basis approach and which cannot.
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* Toulouse School of Economics, Manufacture des Tabacs, 21 Allée de Brienne, 31015 Toulouse Cedex 6, France ([email protected]). The research leading to these results has received funding from the Chairs “Risk Markets and Value Creation” and “Sustainable Finance and Responsible Investments” at TSE, and from the European Research Council under the European Community's Seventh Framework...
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تاریخ انتشار 2008