Stochastic efficiency analysis with risk aversion bounds: a simplified approach

Title
Stochastic efficiency analysis with risk aversion bounds: a simplified approach
Publication Date
2004
Author(s)
Hardaker, J Brian
Richardson, James W
Lien, Gudbrand
Schumann, Keith D
Type of document
Journal Article
Language
en
Entity Type
Publication
Publisher
Wiley-Blackwell Publishing Asia
Place of publication
Australia
DOI
10.1111/j.1467-8489.2004.00239.x
UNE publication id
une:5867
Abstract
A method of stochastic dominance analysis with respect to a function (SDRF) is described and illustrated. The method, called stochastic efficiency with respect to a function (SERF), orders a set of risky alternatives in terms of certainty equivalents for a specified range of attitudes to risk. It can be applied for conforming utility functions with risk attitudes defined by corresponding ranges of absolute, relative or partial risk aversion coefficients. Unlike conventional SDRF, SERF involves comparing each alternative with all the other alternatives simultaneously, not pairwise, and hence can produce a smaller efficient set than that found by simple pairwise SDRF over the same range of risk attitudes. Moreover, the method can be implemented in a simple spreadsheet with no special software needed.
Link
Citation
The Australian Journal of Agricultural and Resource Economics, 48(2), p. 253-270
ISSN
1467-8489
1364-985X
Start page
253
End page
270

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