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Saving Under Uncertainty: A Bivariate Non-Expected Utility Approach

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  • Fanny Demers

    (Department of Economics, Carleton University, Ottawa, Ontario, Canada K1S 5B6)

  • Michel Demers

    (Department of Economics, Carleton University, Ottawa, Ontario, Canada K1S 5B6)

Abstract

We adopt the multivariate non-expected utility approach proposed by Yaari [1986] to provide a characterization of the comparative statics effects of greater risk aversion and of mean-preserving increases in risk on saving and borrowing in the presence of income and interest rate risk.We show that in Yaari's model, it is possible to extend the applicability of the Diamond and Stiglitz [1974] and Kihlstrom and Mirman [1974] (DSKM) single-crossing property to establish a relationship between greater risk aversion and saving (or borrowing) on the basis of the individual's ordinal preferences as long as the two risks are independent. We also demonstrate that the comparative statics effects of a joint mean-preserving increase in random income and interest rate on saving and borrowing can be determined by an extension of the DSKM single-crossing property. The Geneva Papers on Risk and Insurance Theory (1992) 17, 61–75. doi:10.1007/BF00941957

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.

Volume (Year): 17 (1992)
Issue (Month): 1 (June)
Pages: 61-75

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Handle: RePEc:pal:genrir:v:17:y:1992:i:1:p:61-75

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  1. repec:hal:cesptp:halshs-00194667 is not listed on IDEAS
  2. Alain Chateauneuf & Ghizlane Lakhnati & Eric Langlais, 2005. "On the precautionary motive for savings and prudence, in an EU and a NEU framework," Cahiers de la Maison des Sciences Economiques b05034, Université Panthéon-Sorbonne (Paris 1).

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