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<p>Max-stability is the property that taking a maximum between two inputs results in a maximum between two outputs. We study max-stability with respect to first-order stochastic dominance, the most fundamental notion of stochastic dominance in decision theory. Under two additional standard axioms of nondegeneracy and lower semicontinuity, we establish a representation theorem for functionals satisfying max-stability, which turns out to be represented by the supremum of a bivariate function. A parallel characterization result for min-stability, that is, with the maximum replaced by the minimum in max-stability, is also established. By combining both max-stability and min-stability, we obtain a new characterization for a class of functionals, called the <InlineEquation ID="IEq1"> <InlineMediaObject> <ImageObject Color="BlackWhite" FileRef="11579_2025_398_Article_IEq1.gif" Format="GIF" Height="14" Rendition="HTML" Resolution="72" Type="Linedraw" Width="13" /> </InlineMediaObject> <EquationSource Format="TEX">\(\Lambda \)</EquationSource> <EquationSource Format="MATHML"><math> <mi mathvariant="normal">Λ</mi> </math></EquationSource> </InlineEquation>-quantiles, that appear in finance and political science.</p>

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Max- and min-stability under first-order stochastic dominance

  • 期刊论文

  • 发表日期：

    2025年8月7日

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  • Christopher Chambers,
  • Alan Miller,
  • Ruodu Wang,
  • Qinyu Wu

摘要

Max-stability is the property that taking a maximum between two inputs results in a maximum between two outputs. We study max-stability with respect to first-order stochastic dominance, the most fundamental notion of stochastic dominance in decision theory. Under two additional standard axioms of nondegeneracy and lower semicontinuity, we establish a representation theorem for functionals satisfying max-stability, which turns out to be represented by the supremum of a bivariate function. A parallel characterization result for min-stability, that is, with the maximum replaced by the minimum in max-stability, is also established. By combining both max-stability and min-stability, we obtain a new characterization for a class of functionals, called the \(\Lambda \) Λ -quantiles, that appear in finance and political science.