Abstract
This article extends the classic RothschildNStiglitz characterization of comparative risk ("increasing risk") in two directions. By adopting a more general definition of "mean preserving spread" (MPS), it provides a direct construction of a sequence of MPS's linking any pair of distributions that are ranked in terms of comparative risk. It also provides a direct, explicit construction of a zero-conditional-mean "noise" variable for any such pair of distributions. Both results are extended to the case of second order stochastic dominance.
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MACHINA, M., PRATT, J. Increasing Risk: Some Direct Constructions. Journal of Risk and Uncertainty 14, 103–127 (1997). https://doi.org/10.1023/A:1007719626543
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DOI: https://doi.org/10.1023/A:1007719626543