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Revisiting precautionary saving under ambiguity

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  • Peter, Richard

Abstract

I study the two-period consumption-saving problem with non-separable utility under ambiguity. Under smooth ambiguity aversion, ambiguity and greater ambiguity aversion raise optimal saving. When relative prudence in ambiguity preferences does not exceed 2, agents who perceive greater ambiguity have a higher demand for saving. While a convex marginal ambiguity function is not sufficient for precautionary saving in time-separable models (Berger, 2014), I show that it is not even necessary in a time non-separable setting.

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  • Peter, Richard, 2019. "Revisiting precautionary saving under ambiguity," Economics Letters, Elsevier, vol. 174(C), pages 123-127.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:123-127
    DOI: 10.1016/j.econlet.2018.11.009
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    Cited by:

    1. Eric André & Antoine Bommier & François Le Grand, 2022. "The impact of risk aversion and ambiguity aversion on annuity and saving choices," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 33-56, August.
    2. Suen, Richard M. H., 2022. "Precautionary Saving Behaviour under Ambiguity," MPRA Paper 114382, University Library of Munich, Germany.
    3. Claudio Bonilla & Marcos Vergara, 2022. "New results on precautionary saving and nonlinear risks," Journal of Economics, Springer, vol. 136(2), pages 177-189, July.
    4. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2020. "Survival ambiguity and welfare," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 20-42.
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    7. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
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    9. Takao Asano & Yusuke Osaki, 2020. "Portfolio allocation problems between risky and ambiguous assets," Annals of Operations Research, Springer, vol. 284(1), pages 63-79, January.

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    More about this item

    Keywords

    Ambiguity aversion; Non-expected utility; Uncertainty; Saving; Comparative statics;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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