Necessary conditions for comparative statics under uncertainty

Abstract

We investigate the comparative static properties of three classes of CDF changes: first and second degree stochastic dominant shifts, and mean preserving contractions. For each class, we provide conditions that are necessary and sufficient for a dominating shift to cause an unambiguous change in the choice variable. This allows us to see the trade-offs one must make between restrictions on preferences and CDF changes to obtain interesting comparative statics results. We then investigate the implications of our results for the two-period consumption-savings models and for distinguishing agents that do and do not obey the expected utility hypothesis.