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Law of demand and stochastic choice

Author

Listed:
  • S. Cerreia-Vioglio

    (Università Bocconi and IGIER)

  • F. Maccheroni

    (Università Bocconi and IGIER)

  • M. Marinacci

    (Università Bocconi and IGIER)

  • A. Rustichini

    (University of Minnesota)

Abstract

We consider random choice rules that, by satisfying a weak form of Luce’s choice axiom, embody a form probabilistic rationality. We show that for this important class of stochastic choices, the law of demand for normal goods—arguably the main result of traditional consumer theory—continues to hold on average when strictly dominated alternatives are dismissed.

Suggested Citation

  • S. Cerreia-Vioglio & F. Maccheroni & M. Marinacci & A. Rustichini, 2022. "Law of demand and stochastic choice," Theory and Decision, Springer, vol. 92(3), pages 513-529, April.
    • Handle: RePEc:kap:theord:v:92:y:2022:i:3:d:10.1007_s11238-021-09844-x
    DOI: 10.1007/s11238-021-09844-x
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    References listed on IDEAS

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    1. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
    2. Peters, Hans & Wakker, Peter, 1991. "Independence of Irrelevant Alternatives and Revealed Group Preferences," Econometrica, Econometric Society, vol. 59(6), pages 1787-1801, November.
    3. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, Decembrie.
    4. Cerreia-Vioglio, Simone & Lindberg, Per Olov & Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2021. "A canon of probabilistic rationality," Journal of Economic Theory, Elsevier, vol. 196(C).
    5. Bandyopadhyay, Taradas & Dasgupta, Indraneel & Pattanaik, Prasanta K., 1999. "Stochastic Revealed Preference and the Theory of Demand," Journal of Economic Theory, Elsevier, vol. 84(1), pages 95-110, January.
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    Keywords

    Law of demand; Luce choice axiom;

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