Exercise 5
Define and explain the first order and the second order stochastic dominance.
Consider a set of monetary prizes: X = \{0, 5, 30\} and three lotteries:
$p = \left(\frac{2}{12}, \frac{2}{3}, \frac{1}{6}\right)$, $q = \left(\frac{1}{6}, \frac{1}{2}, \frac{1}{3}\right)$ and $r = \left(\frac{3}{4}, \frac{1}{12}, \frac{1}{6}\right)$
Using the definitions that you have given, is it possible to rank these three lotteries in terms of stochastic dominance? Explain.