The Law of Demand and Risk Aversion

John Quah

Econometrica, 2003, vol. 71, issue 2, 713-721

Abstract: 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. Copyright The Econometric Society 2003.

Date: 2003
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