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The effect of future income uncertainty in savings decision

  • Gomes, Fábio Augusto Reis
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    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.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4NP97X9-3/1/3b4545851065b93e4ab62dad04e78e0d
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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 98 (2008)
    Issue (Month): 3 (March)
    Pages: 269-274

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    Handle: RePEc:eee:ecolet:v:98:y:2008:i:3:p:269-274
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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    1. Das, J.W.M. & van Soest, A.H.O., 1996. "A Panel Data Model for Subjective Information on Household Income Growth," Discussion Paper 1996-75, Tilburg University, Center for Economic Research.
    2. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, December.
    3. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
    4. Das, J.W.M. & van Soest, A.H.O., 1995. "Expected and realized income changes : Evidence from the Dutch socio-economic panel," Discussion Paper 1995-52, Tilburg University, Center for Economic Research.
    5. Sujoy Mukerji & Jean-Marc Tallon, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00174539, HAL.
    6. 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 971-87, December.
    7. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
    8. Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
    9. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
    10. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    11. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    12. repec:ner:tilbur:urn:nbn:nl:ui:12-121744 is not listed on IDEAS
    13. 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.
    14. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    15. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
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