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Consumer Choice under Certainty and Uncertainty in Applied Econometrics

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  • Bernt P. Stigum

Abstract

The paper lists salient characteristics of the certainty theory of consumer choice and discusses the import of prominent empirical analyses of the theory. All of them reject the theory’s empirical relevance which suggests that the theory is unfit to analyze consumer choice in an uncertain world. The paper presents an extension of the certainty theory to a theory about consumer choice under uncertainty in which consumer behavior has interesting new properties. I conclude with an empirical test of the empirical relevance of an uncertainty version of Stone’s Linear Expenditure System. In the given empirical context Stone’s System is empirically relevant.

Suggested Citation

  • Bernt P. Stigum, 2021. "Consumer Choice under Certainty and Uncertainty in Applied Econometrics," EERI Research Paper Series EERI RP 2021/08, Economics and Econometrics Research Institute (EERI), Brussels.
  • Handle: RePEc:eei:rpaper:eeri_rp_2021_08
    as

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    File URL: http://www.eeri.eu/documents/wp/EERI_RP_2021_08.pdf
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    References listed on IDEAS

    as
    1. Deaton, Angus S, 1974. "The Analysis of Consumer Demand in the United Kingdom, 1900-1970," Econometrica, Econometric Society, vol. 42(2), pages 341-367, March.
    2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    3. Bernt P. Stigum, 2016. "The Status of Bridge Principles in Applied Econometrics," Econometrics, MDPI, vol. 4(4), pages 1-22, December.
    4. BARTEN, Anton P., 1969. "Maximum likelihood estimation of a complete system of demand equations," LIDAM Reprints CORE 34, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    6. Stigum, Bernt P, 1972. "Resource Allocation under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 431-459, October.
    7. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-383, June.
    8. Christophe Bontemps & Grayham E. Mizon, 2008. "Encompassing: Concepts and Implementation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 721-750, December.
    9. Bernt P. Stigum, 1969. "Competitive Equilibria under Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(4), pages 533-561.
    10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    11. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Utility function; linear expenditure system; almost ideal demand system; income and substitution effects; expectations’ effect.;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D59 - Microeconomics - - General Equilibrium and Disequilibrium - - - Other

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