Premium
The Law of Demand and Risk Aversion
Author(s) -
Quah John K.H.
Publication year - 2003
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/1468-0262.00421
Subject(s) - demand curve , risk aversion (psychology) , economics , commodity , function (biology) , on demand , expected utility hypothesis , microeconomics , econometrics , mathematical economics , finance , commerce , evolutionary biology , biology
This note proposes a necessary and sufficient condition on a utility function to guarantee that it generates a demand function satisfying the law of demand. This condition can be interpreted in terms of an agent's attitude towards lotteries in commodity space. As an application, we show that when an agent has an expected utility function, her demand for securities satisfies the law of demand if her coefficient of relative risk aversion does not vary by more than 4.