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Comparative Risk Aversion: A Formal Approach with Applications to Savings Behaviors

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  • Antoine Bommier

    ()
    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - INRA : UMR)

  • Arnold Chassagnon

    (LEDA-SDFi - LEDA-SDFi - Université Paris Dauphine - Paris IX)

  • François Legrand

    (EMLyon Business School - EMLYON Business School)

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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  1. Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, vol. 46(5), pages 1045-60, September.
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Citations

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Cited by:
  1. Leonard J. Mirman & Marc Santugini, 2011. "On Risk Aversion, Classical Demand Theory, and KM Preferences," Cahiers de recherche 1132, CIRPEE.
  2. 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.
  3. Antoine Bommier & Francois Le Grand, . "A Robust Approach to Risk Aversion," Working Papers ETH-RC-13-002, ETH Zurich, Chair of Systems Design.
  4. Svenja Hector, 2013. "Accounting for Different Uncertainties: Implications for Climate Investments?," Working Papers 2013.107, Fondazione Eni Enrico Mattei.
  5. Gajdos, Thibault & Weymark, John A., 2012. "Introduction to inequality and risk," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1313-1330.
  6. Svenja Hector(), . "Accounting for Different Uncertainties: Implications for Climate Investments?," Working Papers ETH-RC-13-007, ETH Zurich, Chair of Systems Design.
  7. 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.
  8. Benchimol, Jonathan, 2014. "Risk aversion in the Eurozone," Research in Economics, Elsevier, vol. 68(1), pages 39-56.
  9. A. Mantovi, 2013. "Mapping completely proper rationality," Economics Department Working Papers 2013-EP01, Department of Economics, Parma University (Italy).

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