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A Note on Almost Stochastic Dominance

Guo, Xu and Zhu, Xuehu and Wong, Wing-Keung and Zhu, Lixing (2013): A Note on Almost Stochastic Dominance.

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To satisfy the property of expected-utility maximization, Tzeng et al. (2012) modify the almost second-degree stochastic dominance proposed by Leshno and Levy (2002) and define almost higher-degree stochastic dominance. In this note, we further investigate the relevant properties. We define an almost third-degree stochastic dominance in the same way that Leshno and Levy (2002) define second-degree stochastic dominance and show that Leshno and Levy's (2002) almost stochastic dominance has the hierarchy property but not expected-utility maximization. In contrast, Tzeng et al.'s (2012) definition has the property of expected-utility maximization but not the hierarchy property. This phenomenon also holds for higher-degree stochastic dominance for these two concepts. Thus, the findings in this paper suggest that Leshno and Levy's (2002) definitions of ASSD and ATSD might be better than those defined by Tzeng et al. (2012) if the hierarchy property is considered to be an important issue.

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