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Consumption and Saving under Knightian Uncertainty

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Author Info
Jianjun Miao () (Institute for Economic Development, Boston University)

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Abstract

This paper studies consumption/saving problem under Knightian uncer- tainty in a two period setting. The multiple-priors utility model is adopted. The e®ects of income uncertainty and capital uncertainty on optimal savings are analyzed by deriving closed form solutions.

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Publisher Info
Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-134.

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Length: 15 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:bos:iedwpr:dp-134

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January. [Downloadable!] (restricted)
    Other versions:
  2. Larry G. Epstein & JianJun Miao, 2001. "A Two-Person Dynamic Equilibrium under Ambiguity," RCER Working Papers 478, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    Other versions:
  3. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March. [Downloadable!] (restricted)
  4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Larry G. Epstein & Martin Schneider, 2001. "Recursive Multiple-Priors," RCER Working Papers 485, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  7. Hansen, Lars Peter & Sargent, Thomas J & Tallarini, Thomas D, Jr, 1999. "Robust Permanent Income and Pricing," Review of Economic Studies, Blackwell Publishing, vol. 66(4), pages 873-907, October. [Downloadable!] (restricted)
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  8. 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.
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  9. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
    Other versions:
  10. Jianjun Miao, 2004. "Risk, uncertainty and option exercise," Finance 0410013, EconWPA. [Downloadable!]
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  11. Bryan Routledge & Stanley Zin, 2009. "Model Uncertainty and Liquidity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 543-566, October. [Downloadable!] (restricted)
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  12. Epstein Larry G. & Wang Tan, 1995. "Uncertainty, Risk-Neutral Measures and Security Price Booms and Crashes," Journal of Economic Theory, Elsevier, vol. 67(1), pages 40-82, October. [Downloadable!] (restricted)
  13. Epstein, Larry G & Zhang, Jiankang, 2001. "Subjective Probabilities on Subjectively Unambiguous Events," Econometrica, Econometric Society, vol. 69(2), pages 265-306, March.
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  14. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
  15. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  16. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July. [Downloadable!] (restricted)
  17. Zengjing Chen & Larry G. Epstein, 2000. "Ambiguity, risk and asset returns in continuous time," RCER Working Papers 474, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  18. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 579-608, July. [Downloadable!] (restricted)
  19. Evan W. Anderson & Lars Peter Hansen & Thomas J. Sargent, 2003. "A Quartet of Semigroups for Model Specification, Robustness, Prices of Risk, and Model Detection," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 68-123, 03. [Downloadable!] (restricted)
  20. Edmond S. Phelps, 1961. "The Accumulation of Risky Capital: A Discrete-Time Sequential Utility Analysis," Cowles Foundation Discussion Papers 109, Cowles Foundation, Yale University. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Hackbarth & Jianjun Maio, 2007. "The Dynamics of Mergers and Acquisitions in Oligopolistic Industries," Boston University - Department of Economics - Working Papers Series WP2007-017, Boston University - Department of Economics. [Downloadable!]
  2. Isaac Kleshchelski & Nicolas Vincent, 2007. "Robust Equilibrium Yield Curves," Cahiers de recherche 08-02, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
  3. David Backus & Bryan Routledge & Stanley Zin, 2004. "Exotic Preferences for Macroeconomists," NBER Working Papers 10597, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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