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The effect of future income uncertainty in savings decision

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  • Gomes, Fábio Augusto Reis

Abstract

This paper analyzes consumption and savings decisions in a two-period consumption setting, supposing that future income is uncertain in the sense of Knight (Knight, F., 1921. Risk, uncertainty, and profit (Boston: Houghton Mi2in)). The results imply that uncertainty averse agents save more than risk averse agents.

Suggested Citation

  • Gomes, Fábio Augusto Reis, 2008. "The effect of future income uncertainty in savings decision," Economics Letters, Elsevier, vol. 98(3), pages 269-274, March.
    • Handle: RePEc:eee:ecolet:v:98:y:2008:i:3:p:269-274
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    1. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 1-55.
    2. 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 971-987, December.
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    5. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2001. "The Empirical Importance of Precautionary Saving," American Economic Review, American Economic Association, vol. 91(2), pages 406-412, May.
    6. Das, Marcel & van Soest, Arthur, 1997. "Expected and realized income changes: Evidence from the Dutch socio-economic panel," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 137-154, January.
    7. Sujoy Mukerji & Jean-Marc Tallon, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 883-904.
    8. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    9. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    10. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    11. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    12. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    13. George-Marios Angeletos & David Laibson & Andrea Repetto & Jeremy Tobacman & Stephen Weinberg, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
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    15. repec:tiu:tiutis:bdbe10dd-649c-4521-ab28-7aa051a5bf82 is not listed on IDEAS
    16. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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    1. Angel Asensio, 2012. "On Keynes’s Seminal Innovation and Related Essential Features: Revisiting the Notion of Equilibrium in The General Theory," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 1, Edward Elgar Publishing.
    2. Angel Asensio, 2008. "The growing evidence of Keynes's methodology advantage and its consequences within the four macro-markets framework," Post-Print halshs-00189221, HAL.

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