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An Empirical Comparison of Stochastic Dominance among Lognormal Prospects
The Journal of Financial and Quantitative Analysis, 1982l. Introduct ion The theory of portfolio selection and diversification developed by Markowitz [22] and Tobin [33] was based primarily on the criterion of meanvariance (MV) efficiency. The objective was to select an efficient set of portfolios from which every risk averter will choose the optimal portfolio which maximizes his expected utility.
Hassan Tehranian, Billy P. Helms
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Knowledge-Based Systems, 2014
In order to solve a problem of a discrete stochastic multiple-criteria decision making (MCDM) with aspiration levels, a method on the basis of prospect stochastic dominance is proposed in this paper. The psychological behavior of decision maker, for instance, judgmental distortion, reference dependence and loss aversion, are considered.
Chunqiao Tan, W.H. Ip, Xiaohong Chen
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In order to solve a problem of a discrete stochastic multiple-criteria decision making (MCDM) with aspiration levels, a method on the basis of prospect stochastic dominance is proposed in this paper. The psychological behavior of decision maker, for instance, judgmental distortion, reference dependence and loss aversion, are considered.
Chunqiao Tan, W.H. Ip, Xiaohong Chen
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Stochastic Dominance among Log-Normal Prospects
International Economic Review, 1973THE MEAN-VARIANCE EFFICIENCY ANALYSIS introduced by Markowitz [16] and Tobin [24] is a valid decision rule either for the case in which the utility function is quadratic or if the returns are normally distributed and risk-aversion is assumed.2 The notion of stochastic dominance has recently been developed by Quirk and Saposnik [18], Hadar and Russell ...
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STOCHASTIC DOMINANCE OVER CORRELATED PROSPECTS
1986A difficulty occurs in stochastic dominance applications when alternatives are not mutually exclusive and mixed prospects may be formed. Exhaustive examination of all possible mixed prospects is often impractical. In this paper, rules are derived and tested for deciding when and to what extent mixed prospects should be examined.
McCarl, Bruce +5 more
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Experimental test of the prospect theory value function: A stochastic dominance approach
Organizational Behavior and Human Decision Processes, 2002Abstract According to prospect theory, individuals are risk averse regarding gains but risk seeking regarding losses, implying an S-shaped value function. The S-shaped value function hypothesis is based on experiments in which subjects are asked to choose separately between alternatives with either only positive or only negative outcomes ...
Haim Levy, Moshe Levy
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ESTIMATING PROSPECT THEORY'S DECISION WEIGHTS WITH STOCHASTIC DOMINANCE: THE SMALL PROBABILITY CASE
Annals of Financial Economics, 2012When one prospect is certain and the other uncertain, Cumulative Prospect Theory employs the certainty equivalent methodology to estimate Decision Weights (DW). However, DW may be different with two uncertain prospects. In this study, we neutralize the "certainty effect" and propose Stochastic Dominance (SD) to estimate DW for the first time with ...
HAIM LEVY, MICHAL ORKAN
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Ranking Alternative Non-Combinable Prospects: A Stochastic Dominance Based Second Best Solution
2015Parallel Sessions C: Applications of Stochastic Dominance ...
Anderson, Gordon, Leo, Teng Wah
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Stochastic Dominance and Prospect Theory
2016In 2003 Daniel Kahneman won the Nobel Prize for Economics for numerous important contributions. Probably the study with the greatest impact on economic research is his joint contribution with Amos Tversky, called Prospect Theory (PT) and its latest modified version called Cumulative Prospect Theory (CPT).
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Ranking Alternative Non-Combinable Prospects: A Stochastic Dominance Based Route to the Second Best Solution [PDF]
, 2014 The problem considered here is that of dealing with the "incompleteness" property of Stochastic Dominance Orderings by quantifying the extent to which distributions differ when there is no dominant distribution at a given order. For example consider a policymaker's choice problem when facing a set of distinct, non-combinable policy options.
Gordon Anderson, Teng Wah Leo
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