TY - JOUR
T1 - Inverse stochastic dominance constraints and rank dependent expected utility theory
AU - Dentcheva, Darinka
AU - Ruszczyński, Andrzej
PY - 2006/7
Y1 - 2006/7
N2 - We consider optimization problems with second order stochastic dominance constraints formulated as a relation of Lorenz curves. We characterize the relation in terms of rank dependent utility functions, which generalize Yaari's utility functions. We develop optimality conditions and duality theory for problems with Lorenz dominance constraints. We prove that Lagrange multipliers associated with these constraints can be identified with rank dependent utility functions. The problem is numerically tractable in the case of discrete distributions with equally probable realizations.
AB - We consider optimization problems with second order stochastic dominance constraints formulated as a relation of Lorenz curves. We characterize the relation in terms of rank dependent utility functions, which generalize Yaari's utility functions. We develop optimality conditions and duality theory for problems with Lorenz dominance constraints. We prove that Lagrange multipliers associated with these constraints can be identified with rank dependent utility functions. The problem is numerically tractable in the case of discrete distributions with equally probable realizations.
KW - Duality
KW - Lorenz curve
KW - Stochastic programming
KW - Yaari's dual utility
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U2 - 10.1007/s10107-006-0712-x
DO - 10.1007/s10107-006-0712-x
M3 - Article
AN - SCOPUS:33745726312
SN - 0025-5610
VL - 108
SP - 297
EP - 311
JO - Mathematical Programming
JF - Mathematical Programming
IS - 2-3
ER -