Stochastic Dominance And Conditional Expectation - An Insurance Theoretical Approach
(2002) In The Geneva Papers on Risk and Insurance Theory 27(1). p.31-48- Abstract
- 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.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/926188
- author
- Borglin, Anders LU and Keiding, Hans
- organization
- publishing date
- 2002
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- stochastic dominance, conditional expectation, Lorenz domination, reversed martingale
- in
- The Geneva Papers on Risk and Insurance Theory
- volume
- 27
- issue
- 1
- pages
- 31 - 48
- publisher
- Kluwer Academic Publishers
- external identifiers
-
- wos:000178647900003
- scopus:33745330620
- ISSN
- 0926-4957
- language
- English
- LU publication?
- yes
- id
- d1703f2a-2ea2-45b1-ad02-8374189b3da9 (old id 926188)
- date added to LUP
- 2016-04-01 16:43:32
- date last changed
- 2022-01-28 21:39:34
@article{d1703f2a-2ea2-45b1-ad02-8374189b3da9,
abstract = {{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.}},
author = {{Borglin, Anders and Keiding, Hans}},
issn = {{0926-4957}},
keywords = {{stochastic dominance; conditional expectation; Lorenz domination; reversed martingale}},
language = {{eng}},
number = {{1}},
pages = {{31--48}},
publisher = {{Kluwer Academic Publishers}},
series = {{The Geneva Papers on Risk and Insurance Theory}},
title = {{Stochastic Dominance And Conditional Expectation - An Insurance Theoretical Approach}},
volume = {{27}},
year = {{2002}},
}