Stochastic dominance under the nonlinear expected utilities (Q1719011): Difference between revisions

Summary: In [Theory of games and economic behavior. 2nd ed. Princeton: Princeton University Press (1947; Zbl 1241.91002)], \textit{J. von Neumann} and \textit{O. Morgenstern} introduced the well-known expected utility and the related axiomatic system (see [\textit{J. von Neumann} and \textit{O. Morgenstern}, Theory of games and economic behavior. 3rd ed. Princeton: University Press (1953; Zbl 0053.09303)]). It is widely used in economics, for example, financial economics. But the well-known Allais paradox (see [\textit{M. Allais}, Econometrica 21, 503--546 (1953; Zbl 0050.36801)]) shows that the linear expected utility has some limitations sometimes. Because of this, \textit{S. Peng} proposed a concept of nonlinear expected utility [``Nonlinear expectations and stochastic calculus under uncertainty'', Preprint, \url{arXiv:1002.4546}]. In this paper we propose a concept of stochastic dominance under the nonlinear expected utilities. We give sufficient conditions on which a random choice \(X\) stochastically dominates a random choice \(Y\) under the nonlinear expected utilities. We also provide sufficient conditions on which a random choice \(X\) strictly stochastically dominates a random choice \(Y\) under the sublinear expected utilities.