Lecture18-2004 - Lecture XVIII Increasing Risk I....

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1 Lecture XVIII Increasing Risk I. Literature Required A. Over the next several lectures, I would like to develop the notion of stochastic dominance with respect to a function. Meyer is the primary contributor to the basic literature, so the primary readings will be: 1. Meyer, Jack. “Increasing Risk” Journal of Economic Theory 11(1975): 119-32. 2. Meyer, Jack. “Choice Among Distributions.” Journal of Economic Theory 14(1977): 326-36. 3. Meyer, Jack. “Second Degree Stochastic Dominance with Respect to a Function.” International Economic Review 18(1977): 477-87. B. However, in working through Meyer’s articles, we will need concepts from a couple of other important pieces. Specifically, 1. Diamond, Peter A. and Joseph E. Stiglitz. “Increases in Risk and in Risk Aversion.” Journal of Economic Theory 8(1974): 337-60. 2. Pratt, J. “Risk Aversion in the Small and Large.” Econometrica 23(1964): 122-36. 3. Rothschild, M. and Joseph E. Stiglitz. “Increasing Risk I, a Definition.” Journal of Economic Theory 2(1970): 225-43. II. Introduction of “Increasing Risk” A. This paper gives a definition of increasing risk that yields an ordering in terms of riskiness over a large class of cumulative distributions than the ordering obtained using Rothschild and Stiglitz’s original definition.
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This note was uploaded on 07/15/2011 for the course AEB 6182 taught by Professor Weldon during the Fall '08 term at University of Florida.

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Lecture18-2004 - Lecture XVIII Increasing Risk I....

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