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On multivariate prudence

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  • Jouini, Elyès
  • Napp, Clotilde
  • Nocetti, Diego

Abstract

In this note we extend the theory of precautionary saving to the case of multivariate risk. We introduce a notion of multivariate prudence, related to a precautionary premium, and we propose a matrix-measure to capture the strength of the precautionary saving motive. We discuss the usefulness of this measure, in particular for comparing precautionary behavior among individuals. We also characterize the notion of multivariate downside risk aversion as a preference for disaggregating harms across outcomes of multivariate lotteries. We show the link between this notion and the notion of multivariate prudence, we propose a matrix-measure of its intensity, and we illustrate the usefulness of our results in a problem of social discounting.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 3 ()
Pages: 1255-1267

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:3:p:1255-1267

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Precautionary saving; Multivariate risk; Prudence; Multivariate risk aversion; Downside risk aversion;

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References

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Cited by:
  1. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2013. "The marginal propensity to consume and multidimensional risk," Economics Letters, Elsevier, vol. 119(2), pages 124-127.
  2. Christoph Heinzel, 2014. "Term structure of discount rates under multivariate s-ordered consumption growth," Working Papers SMART - LERECO 14-01, INRA UMR SMART.

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