I’m a little unclear on stochastic dominance. In the example in the book on pages 594 to 595, it states that stochastic dominance does not allow you to decide between alternatives of, first, a range of values and, second, a particular value. But couldn’t you just determine the probability that the range would fall above or below the particular value and decide that way?

It’s possible that I don’t understand this because I don’t understand the y-axis “probability” in Figure 16.4a. Where do they get the probabilities of .45 and .5 for S1 and S2? I can see why the probability of particular cost would be higher for S1 relative to S2 because the range of costs is smaller, but I don’t see where the .45 and .5 come from.

For part c and d of 16.3, it seems as though to get the final number or answer, there would be some intense math to do. Do you expect us to calculate these final numbers, or is leaving the formula or derivation fine?

on November 25, 2007 at 6:55 pmJohn MeyerI’m a little unclear on stochastic dominance. In the example in the book on pages 594 to 595, it states that stochastic dominance does not allow you to decide between alternatives of, first, a range of values and, second, a particular value. But couldn’t you just determine the probability that the range would fall above or below the particular value and decide that way?

It’s possible that I don’t understand this because I don’t understand the y-axis “probability” in Figure 16.4a. Where do they get the probabilities of .45 and .5 for S1 and S2? I can see why the probability of particular cost would be higher for S1 relative to S2 because the range of costs is smaller, but I don’t see where the .45 and .5 come from.

Thanks,

John Meyer

on November 28, 2007 at 12:23 amRyan CinoFor part c and d of 16.3, it seems as though to get the final number or answer, there would be some intense math to do. Do you expect us to calculate these final numbers, or is leaving the formula or derivation fine?

on November 28, 2007 at 2:17 amDonnieYeah, I thought the same thing as Ryan did about 16.3 c & d. Was anyone able to get exact numbers for these?

on November 28, 2007 at 2:27 amRonFormulas are fine.