The Tree Model: Learning, Stochastic Dominance and Subjective Option Evaluation
Speaker：Ehud Lehrer, Professor, Tel Aviv University
Host：XU Xinyi, Assistant Professor, Lingnan College
Time and Date：14:00-16:00, September 24, 2021
Venue：WANG Daohan Conference Room + online
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Abstract：
We consider several well-known stochastic dominance relations among prior beliefs, including first-order stochastic dominance, (reverse) hazard rate dominance, and likelihood ratio dominance, and investigate their implications in tree models with unknown state of nature (the probability of moving up). Each period, a random outcome, either up or down, is observed. The history of outcomes reveals information about the state of nature and determines the payoff. For each of the stochastic dominance relations mentioned above, we establish the equivalence between the following distinct conditions: (i) stochastic dominance relation among prior beliefs; (ii) stochastic dominance relation among posterior beliefs conditional on certain histories; (iii) stochastic dominance relation of probability distributions over certain histories. As an application, we study the implications of these stochastic dominance relations of priors on the subjective valuation of European and American options.
Profile of the Speaker：
Ehud Lehrer is the leading scientist of a group of researchers in Tel Aviv University who study Mathematical Economics, Game Theory, Decision Theory, Operation Research and Computer Science. He made a broad range of contributions to the areas above. Lehrer published more than 90 papers on imperfect monitoring; on the interface between information theory, probability, and economic theory; on learning models and in particular on learning to play Nash equilibrium; on heterogeneous time preferences and its role on efficiency; and on the role of partial information in decision making.
Lehrer served as an editor of Games and Economic Behavior for 7 years. He is a fellow of the Econometric and the Game Theory Societies, he was full professor in Kellogg School of Management and he is teaching in INSEAD in the last 16 years.
