Consumer Theory with Price Uncertainty

Abstract

In this paper I propose a general model of consumption for consumers who are uncertain about prices. The behavioral implications of this model can be summarized by a set of non-parametric and testable restrictions on stochastic demand functions that are simple and bear a resemblance to classical restrictions on deterministic demand functions, but are novel in their construction. The empirical performance of these restrictions is assessed using consumption data from setting where there is substantial evidence of price uncertainty: grocery store purchases.