Stochastic Efficiency Analysis with Risk Aversion Bounds: A Simplified Approach

By J. Brian Hardaker, James W. Richardson, Gudbrand Lien, K. Schumann. 2004

331 citations recorded by the source corpus.

A method of stochastic dominance analysis with respect to a function (SDRF) is described and illustrated. The method, called stochastic efficiency with respect to a function (SERF), orders a set of risky alternatives in terms of certainty equivalents for a specified range of attitudes to risk. It can be applied for conforming utility functions with risk attitudes defined by corresponding ranges of absolute, relative or partial risk aversion coefficients. Unlike conventional SDRF, SERF involves comparing each alternative with all the other alternatives simultaneously, not pairwise, and hence can produce a smaller efficient set than that found by simple pairwise SDRF over the same range of risk attitudes. Moreover, the method can be implemented in a simple spreadsheet with no special software needed.

Subfields: Management Science and Operations Research, Ocean Engineering, Soil Science

View Paper: https://www.semanticscholar.org/paper/caf0445368ec75a458587c3864f05f1e8748f41d

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In Management Science and Operations Research

1. Gudbrand Lien
2. J. Brian Hardaker

Citations in the corpus

• Intercropping—Evaluating the Advantages to Broadacre Systems (2021, background): “The maximum size of any subsidy could be determined by the RP [77].”
• Risk and economic sustainability of crop farming systems (2007, methodology): “To supplement the sustainability criterion we used stochastic efficiency with respect to a function (SERF) (Hardaker et al., 2004).”