Ordinal dominance and risk aversion

Authors: Bulat Gafarov Bruno Salcedo

Publish Date: 2014/10/07

Volume: 3, Issue: 2, Pages: 287-298

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Abstract

We find that for sufficiently riskaverse agents strict dominance by pure or mixed actions coincides with dominance by pure actions in the sense of Börgers in Econometrica 612423–430 1993 which in turn coincides with the classical notion of strict dominance by pure actions when preferences are asymmetric Since risk aversion is a cardinal feature all finite singleagent choice problems with ordinal preferences admit compatible utility functions which are sufficiently risk averse as to achieve equivalence between pure and mixed dominance This result extends to some infinite environmentsThis paper originated from a conjecture by Edward Green We are thankful for his guidance and support as well as the useful comments from Lisa Posey Nail Kashaev Lidia Kosenkova Jonathan Weinstein two anonymous referees and the attendants of the 2014 Spring Midwest Trade and Theory Conference at IUPUI and the 25mathrm th International Game Theory Conference at Stony Brook University We gratefully acknowledge the Human Capital Foundation http//wwwhcfoundationru/en/ and particularly Andrey P Vavilov for research support through the Center for the Study of Auctions Procurements and Competition Policy http//capcppsuedu/ at the Pennsylvania State University All remaining errors are our own

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