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Abstract

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) and Quiggin (1982) are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion.

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Paper provided by HAL in its series Working Papers with number hal-00451281.

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Date of creation: 28 Jan 2010
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Handle: RePEc:hal:wpaper:hal-00451281

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Find related papers by JEL classification:

• D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
• 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

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-04-17 (All new papers)
• NEP-UPT-2010-04-17 (Utility Models & Prospect Theory)

References

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Citations

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Cited by:

1. Antoine Bommier & Francois Le Grand, . "A Robust Approach to Risk Aversion," Working Papers ETH-RC-13-002, ETH Zurich, Chair of Systems Design.
   
   • Antoine Bommier & François Le Grand, 2013. "A Robust Approach to Risk Aversion," CER-ETH Economics working paper series 13/172, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
2. Leonard J. Mirman & Marc Santugini, 2011. "On Risk Aversion, Classical Demand Theory, and KM Preferences," Cahiers de recherche 1132, CIRPEE.
3. Jonathan Benchimol, 2012. "Risk Aversion in the Euro area," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00713669, HAL.
4. Antoine Bommier, . "Life-Cycle Preferences Revisited," Working Papers ETH-RC-12-001, ETH Zurich, Chair of Systems Design.
   
   • Antoine Bommier, 2011. "Life-Cycle Preferences Revisited," CER-ETH Economics working paper series 11/155, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
5. Antoine Bommier, Francois Le Grand, . "Too Risk Averse to Purchase Insurance? A Theoretical Glance at the Annuity Puzzle," Working Papers ETH-RC-12-002, ETH Zurich, Chair of Systems Design.
   
   • Antoine Bommier & François Le Grand, 2012. "Too Risk Averse to Purchase Insurance? A Theoretical Glance at the Annuity Puzzle," CER-ETH Economics working paper series 12/157, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
6. A. Mantovi, 2013. "Mapping completely proper rationality," Economics Department Working Papers 2013-EP01, Department of Economics, Parma University (Italy).

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