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Stochastic Dominance Under Independent Noise

Pomatto, Luciano and Strack, Philipp and Tamuz, Omer (2018) Stochastic Dominance Under Independent Noise. . (Unpublished)

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We ask the following question: Given two random variables, X and Y, under what conditions is it possible to find a random variable Z, independent from X and Y, so that X+Z first-order stochastically dominates Y+Z ? We show that such a Z exists whenever X has higher expectation than Y. In addition, if X and Y have equal mean, but the first has lower variance, then Z can be chosen so that X+Z dominates Y+Z in terms of second-order stochastic dominance. We present applications to choice under risk and mechanism design.

Item Type:Report or Paper (Working Paper)
Related URLs:
URLURL TypeDescription Paper Paper
Pomatto, Luciano0000-0002-4331-8436
Tamuz, Omer0000-0002-0111-0418
Additional Information:We thank Kim Border, Simone Cerreia-Vioglio, Jakša Cvitanic, Ed Green, Elliot Lipnowski, Massimo Marinacci, Doron Ravid and Xiaosheng Mu, as well as seminar audiences at the Workshop on Information and Social Economics at Caltech, the University of Chile, Princeton University, and the Stony Brook International Conference on Game Theory. All errors and omissions are our own. Omer Tamuz was supported by a grant from the Simons Foundation (#419427).
Funding AgencyGrant Number
Simons Foundation419427
Record Number:CaltechAUTHORS:20190405-101226198
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:94501
Deposited By: Tony Diaz
Deposited On:05 Apr 2019 17:17
Last Modified:03 Oct 2019 21:04

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