Stochastic Dominance: An Approach to Decision Making Under Risk

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Abstract
This paper introduces stochastic dominance as a technique to reduce the set of possible actions that a decision maker must consider in a decision problem under risk. The procedure usually does not choose an optimal action, but instead eliminates certain actions as unacceptable. Very little need be known about the decision maker's utility function. Two possible applications are presented: (1) upgrading buildings to better withstand an earthquake; and (2) choosing a site for a LNG facility.