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The Law of Demand and Risk Aversion

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  • John Quah

    (St Hugh's College, Oxford)

Abstract

This note proposes a necessary and sufficient condition on a preference to guarantee that the demand function it generates satisfies the law of demand. It shows that the law of demand may be succinctly characterized by differences in an agent's level of risk aversion when she is confronted with different lotteries composed of commodity bundles.

Suggested Citation

  • John Quah, 2002. "The Law of Demand and Risk Aversion," Economics Papers 2002-W3, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:0203
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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2002/w3/hlp7.pdf
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    References listed on IDEAS

    as
    1. Mas-Colell,Andreu, 1985. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521265140.
    2. John K.-H. Quah, 2000. "The Weak Axiom and Comparative Statics," Econometric Society World Congress 2000 Contributed Papers 0437, Econometric Society.
    3. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614, Elsevier.
    4. Bettzuge, Marc Oliver, 1998. "An extension of a theorem by Mitjushin and Polterovich to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 285-300, October.
    5. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702.
    6. Kannai, Yakar, 1989. "A characterization of monotone individual demand functions," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 87-94, February.
    7. Debreu, Gerard, 1976. "Least concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 121-129, July.
    8. Polterovich, Victor & Mityushin, Leonid, 1978. "Criteria for Monotonicity of Demand Functions," MPRA Paper 20097, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Amir, Rabah & Evstigneev, Igor V., 2018. "A new look at the classical Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 109(C), pages 99-103.
    2. Ivan Boldyrev & Olessia Kirtchik, 2014. "General Equilibrium Theory behind the Iron Curtain: The Case of Victor Polterovich," History of Political Economy, Duke University Press, vol. 46(3), pages 435-461, Fall.
    3. Siemroth, Christoph, 2014. "Why prediction markets work : The role of information acquisition and endogenous weighting," Working Papers 14-02, University of Mannheim, Department of Economics.
    4. Quah, John K. -H., 2003. "Market demand and comparative statics when goods are normal," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 317-333, June.
    5. Franks, Edwin & Bryant, William D.A., 2017. "The Uncompensated Law of Demand: A ‘Revealed Preference’ approach," Economics Letters, Elsevier, vol. 152(C), pages 105-111.
    6. Lanier, Joshua, 2020. "Risk, ambiguity, and Giffen assets," Journal of Economic Theory, Elsevier, vol. 186(C).
    7. Hua Chen & Michael Sherris & Tao Sun & Wenge Zhu, 2013. "Living With Ambiguity: Pricing Mortality-Linked Securities With Smooth Ambiguity Preferences," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 705-732, September.
    8. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, September.
    9. Giraud Gael & Quah John K.-H., 2003. "Homothetic or Cobb-Douglas Behavior Through Aggregation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-23, December.
    10. Michael Jerison & John K.-H. Quah, 2006. "Law of Demand," Discussion Papers 06-07, University at Albany, SUNY, Department of Economics.
    11. Andrés Carvajal & Rahul Deb & James Fenske & John Quah, 2014. "A nonparametric analysis of multi-product oligopolies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 253-277, October.
    12. Chambers, Christopher P. & Echenique, Federico & Shmaya, Eran, 2010. "On behavioral complementarity and its implications," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2332-2355, November.
    13. Yakar Kannai & Larry Selden, 2014. "Violation of the Law of Demand," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 1-28, January.
    14. Peter Moffatt & Keith Moffatt, 2011. "Mirror utility functions and reflexion properties of various classes of goods," University of East Anglia Applied and Financial Economics Working Paper Series 031, School of Economics, University of East Anglia, Norwich, UK..
    15. John Quah, 2004. "The aggregate weak axiom in a financial economy through dominant substitution effects," Economics Papers 2004-W18, Economics Group, Nuffield College, University of Oxford.
    16. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

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