Stochastic Dominance And Conditional Expectation - An Insurance Theoretical Approach
Författare
Summary, in English
We show that the relation of second order stochastic dominance, which has found widespread use in models of economic behavior under uncertainty, may be described in terms of conditional expectation. If a distribution G second order stochastically dominates another distribution F, then there are random variables g and f with distributions G and F, respectively, such that g can be obtained from f by iterated conditional expectation. In terms of insurance, this shows that the less risky distribution can be obtained by a sequence of insurance contracts each one insuring against the residual risk left over from the previous contracts.
Avdelning/ar
Publiceringsår
2002
Språk
Engelska
Sidor
31-48
Publikation/Tidskrift/Serie
The Geneva Papers on Risk and Insurance Theory
Volym
27
Issue
1
Dokumenttyp
Artikel i tidskrift
Förlag
Kluwer Academic Publishers
Ämne
- Economics
Nyckelord
- stochastic dominance
- conditional expectation
- Lorenz domination
- reversed martingale
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 0926-4957