Partial Stochastic Dominance
The stochastic dominance ordering over probability distributions is one of the most familiar concepts in economic and financial analysis. One difficulty with stochastic dominance is that many distributions are not ranked at all, even when arbitrarily close to other distributions that are. Because of this, several measures of "partial" or "near" stochastic dominance have been introduced into the literature—albeit on a somewhat ad hoc basis. This paper argues that there is a single measure of extent of stochastic dominance that can be regarded as the most natural default measure from the perspective of economic analysis.
Stochastic dominance, Stochastic order
Research Institute for Economics and Business Administration,
Rokkodai-cho, Nada-ku, Kobe
Research School of Economics, Australian National University