A Comment on Rothschild and Stiglitz's “Increasing Risk: I. A Definition”

Rothschild and Stiglitz (R&S) were the first to define and introduce the concept of one asset being more risky than another one. Therefore, their paper is a cornerstone in the theory of risk. Nevertheless, there is an error in a construction of the mean preserving spread (MPS) in Lemma 1 of the...

Full description

Saved in:
Bibliographic Details
Published in:Journal of economic theory 1997-11, Vol.77 (1), p.223-228
Main Authors: Leshno, Moshe, Levy, Haim, Spector, Yishay
Format: Article
Language:English
Subjects:
Economic models
Economic theory
Risk
Studies
Uncertainty
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Rothschild and Stiglitz (R&S) were the first to define and introduce the concept of one asset being more risky than another one. Therefore, their paper is a cornerstone in the theory of risk. Nevertheless, there is an error in a construction of the mean preserving spread (MPS) in Lemma 1 of the paper. The correction of the proof of R&S is important particularly as the paper is widely taught in courses dealing with uncertainty and risk analysis. We modified R&S's MPS and show that all their conclusions are intact.Journal of Economic LiteratureClassification Number: D81.
ISSN:0022-0531
1095-7235
DOI:10.1006/jeth.1997.2302