Stochastic Dominance under Independent Noise

@article{Pomatto2020StochasticDU,
  title={Stochastic Dominance under Independent Noise},
  author={Luciano Pomatto and Philipp Strack and Omer Tamuz},
  journal={Journal of Political Economy},
  year={2020},
  volume={128},
  pages={1877 - 1900}
}
Stochastic dominance is a crucial tool for the analysis of choice under risk. It is typically analyzed as a property of two gambles that are taken in isolation. We study how additional independent sources of risk (e.g., uninsurable labor risk, house price risk) can affect the ordering of gambles. We show that, perhaps surprisingly, background risk can be strong enough to render lotteries that are ranked by their expectation ranked in terms of first-order stochastic dominance. We extend our… Expand
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