Studies in Risk and Uncertainty

Stochastic Dominance

Investment Decision Making under Uncertainty

Editors: Levy, Haim (Ed.)

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About this book

This book is devoted to investment decision-making under uncertainty. The book covers three basic approaches to this process: a) The stochastic dominance approach, developed on the foundation of von­ Neumann and Morgenstern' expected utility paradigm. 2 b) The mean-variance approach developed by Markowitz on the foundation of von-Neumann and Morgenstem's expected utility or simply on the assumption of a utility function based on mean and variance. c) The non-expected utility approach, focusing on prospect theory and its modi­ fied version, cumulative prospect theory. This theory is based on an experi­ mental finding that subjects participating in laboratory experiments often violate expected utility maximization: They tend to use · subjective probability beliefs that differ systematically from the objective probabilities and to base their decisions on changes in wealth rather than on total wealth. The above approaches are discussed and compared in this book. W e also discuss cases in which stochastic dominance rules coincide with the mean-variance rule and cases in which contradictions between these two approaches may occur. We then discuss the relationship between stochastic dominance rules and prospect theory, and establish a new investment decision rule which combines the two and which we call prospect stochastic dominance. Although all three approaches are discussed, most of the book is devoted to the stochastic dominance paradigm.

Table of contents (14 chapters)

Buy this book

eBook $69.99
price for USA (gross)
  • ISBN 978-1-4757-2840-8
  • Digitally watermarked, DRM-free
  • Included format: PDF
  • ebooks can be used on all reading devices
  • Immediate eBook download after purchase
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Bibliographic Information

Bibliographic Information
Book Title
Stochastic Dominance
Book Subtitle
Investment Decision Making under Uncertainty
Editors
  • Haim Levy
Series Title
Studies in Risk and Uncertainty
Series Volume
12
Copyright
1998
Publisher
Springer US
Copyright Holder
Springer Science+Business Media New York
eBook ISBN
978-1-4757-2840-8
DOI
10.1007/978-1-4757-2840-8
Series ISSN
0926-972X
Edition Number
1
Number of Pages
XII, 379
Number of Illustrations and Tables
27 b/w illustrations
Topics