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Saving Under Uncertainty: A Bivariate Non-Expected Utility Approach

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  • Fanny Demers

    (Department of Economics, Carleton University, Ottawa, Ontario, Canada K1S 5B6)

  • Michel Demers

    (Department of Economics, Carleton University, Ottawa, Ontario, Canada K1S 5B6)

Abstract

We adopt the multivariate non-expected utility approach proposed by Yaari [1986] to provide a characterization of the comparative statics effects of greater risk aversion and of mean-preserving increases in risk on saving and borrowing in the presence of income and interest rate risk.We show that in Yaari's model, it is possible to extend the applicability of the Diamond and Stiglitz [1974] and Kihlstrom and Mirman [1974] (DSKM) single-crossing property to establish a relationship between greater risk aversion and saving (or borrowing) on the basis of the individual's ordinal preferences as long as the two risks are independent. We also demonstrate that the comparative statics effects of a joint mean-preserving increase in random income and interest rate on saving and borrowing can be determined by an extension of the DSKM single-crossing property. The Geneva Papers on Risk and Insurance Theory (1992) 17, 61–75. doi:10.1007/BF00941957

Suggested Citation

  • Fanny Demers & Michel Demers, 1992. "Saving Under Uncertainty: A Bivariate Non-Expected Utility Approach," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 17(1), pages 61-75, June.
  • Handle: RePEc:pal:genrir:v:17:y:1992:i:1:p:61-75
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    Cited by:

    1. Alain Chateauneuf & Ghizlane Lakhnati & Eric Langlais, 2005. "On the precautionary motive for savings and prudence, in an EU and a NEU framework," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194667, HAL.
    2. Alain Chateauneuf & Ghizlane Lakhnati & Eric Langlais, 2016. "On the precautionary motive for savings and prudence in the rank-dependent utility framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(1), pages 169-182, January.

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