Probabilistic Sophistication, Second Order Stochastic Dominance, and Uncertainty Aversion

Article, Preprint English OPEN
Cerreia-Vioglio, Simone ; Maccheroni, Fabio ; Marinacci, Massimo ; Montrucchio, Luigi (2012)
  • Journal: Journal of Mathematical Economics (issn: 0304-4068)
  • Related identifiers: doi: 10.1016/j.jmateco.2012.05.005
  • Subject: Probabilistic Sophistication; Second Order Stochastic Dominance; Uncertainty Aversion; Unambiguous Events; Subjective Expected Utility
    • jel: jel:D81
    arxiv: Mathematics::Optimization and Control | Computer Science::Computer Science and Game Theory

We study the interplay of probabilistic sophistication, second order stochastic dominance, and uncertainty aversion, three fundamental notions in choice under uncertainty. In particular, our main result, Theorem 2, characterizes uncertainty averse preferences that satisfy second order stochastic dominance, as well as uncertainty averse preferences that are probabilistically sophisticated.
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