Stochastic Dominance criteria
4 min readOct 24, 2020
Can we compare the relative value of two investments, asset A and asset B, without actually selecting a specific utility function?
This article describes the concept of stochastic dominance to compare the outcomes in environments involving uncertainty.
Stochastic dominance (SD) refers to one data set’s dominance over another relative to the value of the outcomes. It’s a form of stochastic ordering and a generalization of utility theory which requires neither a firm’s specific utility function nor a specific return distribution. Rather, in this article…