Stochastic demand correspondences and their aggregation properties

Abstract

Bandyopadhyay, Dasgupta and Pattanaik [JET, 2002] have presented a construction that aggregates standard demand functions by a stochastic demand function, in such way that the latter satisfies the weak axiom of stochastic revealed preference when the former fulfil Samuelson's weak axiom of revealed preference. We introduce a concept of stochastic demand correspondences and generalize WASRP to this new setting. Also, we propose a procedure to aggregate stochastic demand correspondences that (a) includes the previous one by those authors, (b) aggregates the weak axiom of stochastic revealed preference (and thus stochastic substitutability when we started with tight stochastic demand functions), and (c) produces a stochastically rational stochastic demand correspondence when the primitive ones are stochastically rational. Interpretations of the model are provided too. An analogous to the result that rationalizability of stochastic demand functions by stochastic orderings implies WASRP holds for the correspondence setting. We also discuss the convenience of adopting a formal variation of the notion of being stochastically rational that was proposed in the literature.Weak Axiom of Stochastic Revealed Preference; Weak Axiom of Revealed Preference; representative consumer; stochastic demand aggregation.