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Stochastic Dominance And Conditional Expectation - An Insurance Theoretical Approach

Borglin, Anders LU and Keiding, Hans (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.
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author
organization
publishing date
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
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
2008-01-17 12:02:04
date last changed
2017-08-20 04:29:15
@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},
  keyword      = {stochastic dominance,conditional expectation,Lorenz domination,reversed martingale},
  language     = {eng},
  number       = {1},
  pages        = {31--48},
  publisher    = {Kluwer},
  series       = {The Geneva Papers on Risk and Insurance Theory},
  title        = {Stochastic Dominance And Conditional Expectation - An Insurance Theoretical Approach},
  volume       = {27},
  year         = {2002},
}