Stochastic dominance and Friedman-Savage utility functions (Q1116869)

Two-way stochastic dominance is defined as the ordering corresponding to the unanimous ranking given by all risk-averse and risk-loving agents. This new ordering of random incomes is shown to have an intuitive economic interpretation and to be a potential substitute for first degree dominance. Two-way dominance is shown to be closely related to a class of utility functions which has been studied by \textit{M. Friedman} and \textit{L. Savage} [J. Polit. Econ. 41, 279-304 (1948)]. The analysis draws on the geometry of cone orderings, a technique which yields rather directly the price characterization of random variables efficient with respect to two- way dominance.