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Precautionary Saving Behaviour under Ambiguity

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  • Suen, Richard M. H.

Abstract

This paper analyses a two-period model in which a consumer faces a future income risk but is uncertain about its probability distribution. We derive three sets of sufficient conditions under which a consumer with generalised recursive smooth ambiguity (GRSA) preferences will save more under ambiguity than in a deterministic environment. Our results show how precautionary saving is jointly determined by attitudes toward atemporal risk, ambiguity and intertemporal substitution. We also find a close connection between risk prudence under non-expected utility and precautionary saving under GRSA preferences.

Suggested Citation

  • Suen, Richard M. H., 2022. "Precautionary Saving Behaviour under Ambiguity," MPRA Paper 114382, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114382
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    References listed on IDEAS

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    More about this item

    Keywords

    Precautionary Saving; Risk Aversion; Intertemporal Substitution; Smooth Ambiguity Preferences.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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