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Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving

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  • Ventura, Luigi
  • Horioka, Charles Yuji

Abstract

In this paper, we first show that a particular form of precautionary saving, which we will call "intertemporal precautionary saving" to distinguish it from purely intertemporal and purely precautionary saving, will inevitably arise in the case of pure (downside) risk as long as consumers are risk-averse, even if they are not prudent. We then present a simple example that shows that even pure precautionary saving (i.e., saving generated by risk alone without effects on expected income) may arise as long as consumers are risk-averse, even if they are not prudent and even if risk is speculative (two-sided).

Suggested Citation

  • Ventura, Luigi & Horioka, Charles Yuji, 2025. "Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving," AGI Working Paper Series 2025-19, Asian Growth Research Institute.
    • Handle: RePEc:agi:wpaper:02000255
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    References listed on IDEAS

    as
    1. Charles Yuji Horioka & Luigi Ventura, 2025. "Why Do Europeans Save? Micro‐Evidence From the Household Finance and Consumption Survey," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(2), May.
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    5. Segal, Uzi & Spivak, Avia & Zeira, Joseph, 1988. "Precautionary saving and risk aversion : An anticipated utility approach," Economics Letters, Elsevier, vol. 27(3), pages 223-227.
    6. Eeckhoudt, Louis & Schlesinger, Harris, 2008. "Changes in risk and the demand for saving," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1329-1336, October.
    7. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
    8. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    9. Zhou, Yanfei, 2003. "Precautionary saving and earnings uncertainty in Japan: A household-level analysis," Journal of the Japanese and International Economies, Elsevier, vol. 17(2), pages 192-212, June.
    10. Alba Lugilde & Roberto Bande & Dolores Riveiro, 2019. "Precautionary Saving: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 481-515, April.
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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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