Lotteries and the Law of Demand

  • Rodney J. Garratt
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 655)


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.


Reservation Price Commodity Price Interior Solution Indirect Utility Absolute Risk Aversion 
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Copyright information

© Springer Berlin Heidelberg 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CaliforniaSanta BarbaraUSA

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