Decision making with stochastic dominance: An expository review

Abstract

This paper surveys the use of stochastic dominance to decision making under uncertainty. The first part presents the relevant definitions and some properties of distributions satisfying one of the stochastic dominance conditions. These properties include restrictions on moments, an invariance property, and properties of random variables related by an exact formula. The second part contains some applications of the stochastic dominance method and especially the problem of selecting optimal portfolios. Most of the results in this section deal with conditions that make diversification an optimal strategy. © 1974.