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The effect of future income uncertainty in savings decision

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  • Gomes, Fábio Augusto Reis
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    Abstract

    This paper analyzes consumption and savings decisions in a two-period consumption setting, supposing that future income is uncertain in the sense of Knight (Knight, F., 1921. Risk, uncertainty, and profit (Boston: Houghton Mi2in)). The results imply that uncertainty averse agents save more than risk averse agents.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4NP97X9-3/1/3b4545851065b93e4ab62dad04e78e0d
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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 98 (2008)
    Issue (Month): 3 (March)
    Pages: 269-274

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    Handle: RePEc:eee:ecolet:v:98:y:2008:i:3:p:269-274

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    Web page: http://www.elsevier.com/locate/ecolet

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    1. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
    2. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    3. Mukerji, Sujoy & Tallon, Jean-Marc, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 883-904, October.
    4. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
    5. Das, Marcel & van Soest, Arthur, 1999. "A panel data model for subjective information on household income growth," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 409-426, December.
    6. Das, J.W.M. & Soest, A.H.O. van, 1997. "Expected and realized income changes: Evidence from the Dutch socio-economic panel," Open Access publications from Tilburg University urn:nbn:nl:ui:12-121744, Tilburg University.
    7. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    8. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    9. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
    10. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    11. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    12. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
    13. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    14. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
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