A note on demand functions with uncertainty

Authors:
Harish Krishnan
Affiliations:
Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, British Columbia, Canada, V6T 1Z2
Venue:
Operations Research Letters
Year:
2010

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Abstract

Demand functions with ''additive'' and ''multiplicative'' uncertainty can fail to satisfy the ''Slutsky symmetry'' conditions required for demand to be based on utility maximization. This makes welfare analysis infeasible, which is important in many applications. Additive uncertainty can also generate negative demand realizations, and this can create non-trivial analytical problems.