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On multivariate prudence

Listed author(s):
  • Jouini, Elyès
  • Napp, Clotilde
  • Nocetti, Diego

In this note we extend the theory of precautionary saving to the case of multivariate risk. We introduce a notion of multivariate prudence, related to a precautionary premium, and we propose a matrix-measure to capture the strength of the precautionary saving motive. We discuss the usefulness of this measure, in particular for comparing precautionary behavior among individuals. We also characterize the notion of multivariate downside risk aversion as a preference for disaggregating harms across outcomes of multivariate lotteries. We show the link between this notion and the notion of multivariate prudence, we propose a matrix-measure of its intensity, and we illustrate the usefulness of our results in a problem of social discounting.

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File URL: http://www.sciencedirect.com/science/article/pii/S002205311300029X
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 3 ()
Pages: 1255-1267

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:3:p:1255-1267
DOI: 10.1016/j.jet.2012.10.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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