Consumer Choice under Certainty and Uncertainty in Applied Econometrics

Bernt P. Stigum

Journal of Economics and Econometrics, 2022, vol. 65, issue 1, 1-27

Abstract: The paper lists salient characteristics of the certainty theory of consumer choice and discusses the import of prominent empirical analyses of the theory. All of them reject the theory’s empirical relevance which suggests that the theory is unfit to analyze consumer choice in an uncertain world. The paper presents an extension of the certainty theory to a theory about consumer choice under uncertainty in which consumer behavior has interesting new properties. I conclude with an empirical test of the empirical relevance of an uncertainty version of Stone’s Linear Expenditure System. In the given empirical context Stone’s System is empirically relevant.

Keywords: Utility function; linear expenditure system; almost ideal demand system; income and substitution effects; expectations’ effect. (search for similar items in EconPapers)
JEL-codes: A12 B23 B41 C01 C18 C30 C45 C51 C52 D12 D41 D59 (search for similar items in EconPapers)
Date: 2022
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