Stochastic Dominance : Investment Decision Making under Uncertainty
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Book Overview
This second edition of Stochastic Dominance is devoted to investment decision- making under uncertainty. The book covers four basic approaches to this process: a) The stochastic dominance (SD) approach, developed on the foundation of von-Neumann and Morgenstem expected utiHty paradigm. b) The mean-variance approach developed by Markowitz on the foundation of von-Neumann and Morgenstern's expected utility or simply on the assumption of a utility function based on mean and variance. c) The "almost" stochastic dominance (ASD) rules and the "almost" me- variance rule (AMV). No matter whether one employs objective or subjective probabilities, the common stochastic dominance criteria and the mean variance rule may lead to paradoxes: they are unable to rank prospect A w hich yields $1 with a probability of 0.01 and a million dollars with probability of 0.99, and prospect B which yields $2 with certainty. This is an absurdity as in any sample of subjects one takes, 100% of subjects choose A. The "almost" stochastic dominance criteria and "almost" mean variance rule, which have been recently been developed by Leshno and Levy in 2002 , suggest a remedy to such paradoxes.
Format:Paperback
Language:English
ISBN:1441939830
ISBN13:9781441939838
Release Date:November 2010
Publisher:Springer
Length:439 Pages
Weight:1.40 lbs.
Dimensions:0.9" x 6.1" x 9.2"
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