Stochastic Dominance pp 319-336 | Cite as

# Non-Expected Utility and Stochastic Dominance

## Abstract

Most of the economic and finance models that deal with investment decision making under uncertainty are based on the expected utility paradigm. However, experimental studies have shown that subjects often behave in a manner that runs counter to expected utility maximization. Such inconsistencies have been shown to be mainly due to violation of the independent axiom (called also the interchangeability axiom, see Chapter 2). In this chapter, we discuss some of the violations of the expected utility model (for a fuller account, see Machina, [1982 and 1983]^{1}), and review the modified of the expected utility theory, the *generalized expected utility* or *non-expected utility theory*, as well as the competing models that have been developed in order to avoid these violations.

## Keywords

Utility Function Utility Theory Prospect Theory Stochastic Dominance Expect Utility Theory## Preview

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## Notes

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