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Lotteries and the Law of Demand

In: New Insights into the Theory of Giffen Goods

Author

Listed:
  • Rodney J. Garratt

    (University of California)

Abstract

In economies with nonconvexities consumers can increase their expected utility by consuming lotteries. Lotteries are probability distributions over bundles in the consumption set. Standard revealed preference logic can be applied to choices in lottery space, however the implications are not readily interpretable. In this paper, we formulate the law of demand for lottery economies in terms of commodity price changes and changes in demand for commodities. The finding is that the standard expression of the compensated law of demand necessarily holds in expectation only.

Suggested Citation

  • Rodney J. Garratt, 2012. "Lotteries and the Law of Demand," Lecture Notes in Economics and Mathematical Systems, in: Wim Heijman & Pierre Mouche (ed.), New Insights into the Theory of Giffen Goods, pages 161-171, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-21777-7_12
    DOI: 10.1007/978-3-642-21777-7_12
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    Cited by:

    1. Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.

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