Preferences over location-scale family

Preferences over location-scale family

http://www.springerlink.com/content/8u35m066117132q8/fulltext.pdf
Journal Economic Theory
Publisher Springer Berlin / Heidelberg
ISSN 0938-2259 (Print) 1432-0479 (Online)
Category Research Article
DOI 10.1007/s00199-007-0254-3
Subject Collection Business and Economics
SpringerLink Date Wednesday, May 16, 2007

Wing-Keung Wong 1, 2 and Chenghu Ma 3

(1) Risk Management Institute and Department of Economics, National University of Singapore, Singapore, 117568, Singapore
(2) Department of Economics, Hong Kong Baptist University, Hong Kong, China
(3) Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, China

Abstract This paper extends the work on location-scale (LS) family with general n random seed sources. First, we clarify and generalize existing results in this multivariate setting. Some useful geometrical and topological properties of the location-scale expected utility functions are obtained. Second, we introduce and study some general non-expected utility functions defined over the LS family. Special care is taken in characterizing the shapes of the indifference curves induced by the location-scale expected utility functions and non-expected utility functions. Finally, efforts are also made to study several well-defined partial orders and dominance relations defined over the LS family. These include the first- and second-order stochastic dominances, the mean-variance rule, and a newly defined location-scale dominance.
Keywords Location-scale family - Inverse problem - Non-expected utility function - Stochastic dominance - Location-scale dominance - Mean-variance rule

JEL Classification Numbers G11 - C60 - G10