The analysis of risky investment. A State-Contingent Approach

The paper extends the stochastic dominance analysis into a state-contingent framework. Unlike the regular stochastic dominance rules in which case the dominance is defined over the states, the efficiency analysis is applicable also for prospects that can be diversified between themselves or with other assets. The paper presents definitions of the state-contingent dominance rules, theorems with respect to the properties of these rules, comparisons between the regular stochastic dominance rules, the state-contingent dominance rules, and demonstrations of some economic implications and uses of these rules.