Stochastic Dominance Analysis Without the Independence Axiom

We characterize the consistency of a large class of nonexpected utility preferences (including mean-variance preferences and prospect theory preferences) with stochastic orders (for example, stochastic dominances of different degrees). Our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision maker’s preferences. As an illustration, we consider in some detail prospect theory and choice-acclimating preferences, two popular models of reference dependence under risk, and we show the incompatibility of loss aversion with prudence. This paper was accepted by James Smith, decision analysis.

• 저널Management Science · 63(4) · 1097–1109
• 토픽Decision-Making and Behavioral Economics · General Decision Sciences
• DOI10.1287/mnsc.2015.2388
• 저자Simone Cerreia‐Vioglio, Fabio Maccheroni, Mássimo Marinacci