Variance as a proxy for risk: the case of the binomial distribution
1997
SUMMARY In a recent review of stochastic dominance, Levy has observed that there are (to date) three cases in which a meanpreserving increase in variance leads to the unequivocal reduction in the welfare of all risk averse individuals. These cases are defined by expected utility functions which have a quadratic von Neumann-Morgenstem utility function, a normal distribution or a log-normal distribution. This paper adds a fourth case to Levy's list of three by employing Sproule's mean-preserving transformation of the Bernoulli distribution and the Fu and Sproule generalization of the binomial distribution.
Keywords:
- Correction
- Source
- Cite
- Save
- Machine Reading By IdeaReader
7
References
2
Citations
NaN
KQI