Mean preserving portfolio dominance

Michael Landsberger, Isaac Meilijson

Research output: Contribution to journalArticlepeer-review

Abstract

Consider risk averse agents with utility functions V and V holding portfolios composed of the same two (risky and riskless) assets. Then, V is (Arrow) more risk averse if in all such portfolios V invests less in the risky asset. A natural extension of this analysis of attitudes towards risk to risk itself is to establish a relation between distributions which is necessary and sufficient to induce such investment patterns in the class of all risk-averse agents. This characterization is established in this paper for distributions with equal means. Second Degree Dominance performs a similar role for the notion of more risk averse introduced by Pratt but it is too weak for the Arrow concept.

Original languageEnglish
Pages (from-to)479-485
Number of pages7
JournalReview of Economic Studies
Volume60
Issue number2
DOIs
StatePublished - Apr 1993

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