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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. 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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    11. Das, Marcel & van Soest, Arthur, 1999. "A panel data model for subjective information on household income growth," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 409-426, December.
    12. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
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    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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