A tale of two tails: An alternative characterization of comparative risk

Michael Landsberger*, Isaac Meilijson

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

A characterization of comparative risk, parallel to but more restrictive than the Rothschild-Stiglitz (1970) characterization, is developed. As in Rothschild and Stiglitz, we develop a four-way characterization that consists of generating processes (a noise condition and generation by a sequence of special mean-preserving spreads), integral conditions, and preferences. The building blocks of this new order, Mean-preserving increases in risk about ν, where ν is any constant, are mean-preserving spreads whose centers have a nonempty intersection. If this intersection contains the mean of the distribution, the induced order, or mean-preserving increase in risk about the mean, conveys a particularly meaningful notion of an increase in risk as a buildup of the tails of the distribution.

Original languageEnglish
Pages (from-to)65-82
Number of pages18
JournalJournal of Risk and Uncertainty
Volume3
Issue number1
DOIs
StatePublished - Mar 1990

Keywords

  • mean-preserving spreads
  • risk
  • star-shape
  • uncertainty

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