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  4. February 2024
  5. Weighted Utility and Optimism/Pessimism: A Decision-Theoretic Foundation of Various Stochastic Dominance Orders

Weighted Utility and Optimism/Pessimism: A Decision-Theoretic Foundation of Various Stochastic Dominance Orders

  • Tao Wang
  • Ehud Lehrer
American Economic Journal: Microeconomics
vol. 16, no. 1, February 2024
(pp. 210-23)
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Abstract

We show that a probability distribution likelihood ratio dominates another distribution if and only if, for every weighted utility function, the former is preferred over the latter. Likewise, a probability distribution hazard rate (or reverse hazard rate) dominates another distribution if and only if, the former is preferred by every optimistic (or pessimistic) decision maker.

Citation

Wang, Tao, and Ehud Lehrer. 2024. "Weighted Utility and Optimism/Pessimism: A Decision-Theoretic Foundation of Various Stochastic Dominance Orders." American Economic Journal: Microeconomics, 16 (1): 210-23. DOI: 10.1257/mic.20220350

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
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