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

Wang, Tao; Lehrer, Ehud

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, T., & Lehrer, E. (2024). Weighted Utility and Optimism/Pessimism: A Decision-Theoretic Foundation of Various Stochastic Dominance Orders. American Economic Journal: Microeconomics, 16(1), 210-223. https://doi.org/10.1257/mic.20220350

• Journal Article Type: Article
• Acceptance Date: May 2, 2023
• Publication Date: 2024-02
• Deposit Date: Aug 15, 2023
• Publicly Available Date: Feb 29, 2024
• Journal: American Economic Journal: Microeconomics
• Print ISSN: 1945-7669
• Electronic ISSN: 1945-7685
• Publisher: American Economic Association
• Peer Reviewed: Peer Reviewed
• Volume: 16
• Issue: 1
• Pages: 210-223
• DOI: https://doi.org/10.1257/mic.20220350
• Public URL: https://durham-repository.worktribe.com/output/1718281