Stochastic Dominance and Distributional Inequality

추계적 우세법칙과 분포의 비상등성

In this research, we proposed "coefficient of inequality" as a measure of distributional inequality for an alternative, which is defined as the area between the diagonal line from 0 to 1 and the Lorenz curve of the given alternative. Next, we showed theoretical relationship between stochastic dominance and the coefficient of inequality as a means to determine the preferred alternative when decision is made with incomplete information about decision maker's utility function. Then, two experiments were performed to test subject‘s attitude toward risk. The results of the experiments support the idea that when a decision maker is risk averse or risk prone, he/she can use the coefficient of inequality as a decision rule to choose the preferred alternative instead of using stochastic dominance. Thus, according to decision maker’s attitude toward risk, the decision rule proposed here can be used as a valuable aid in decision making under uncertainty with incomplete information.