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Precautionary Savings of Agents with Heterogeneous Risk Aversion

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  • Michele Limosani
  • Emanuele Millemaci

Abstract

This paper focuses on the estimation of the importance of the precautionary motive in the wealth accumulation decision. We use a micro dataset containing information on wealth, a subjective measure of income uncertainty and subjective indicators of risk aversion. The latter makes us possible to account for the fact that more risk averse individuals may select themselves into less risky occupations and, therefore, bias results. Restricting our analysis on male employees heads of households living with partner and children, we find that only a small share of wealth is accumulated for the precautionary motive. Our findings suggest that the more risk averse individuals are those who hold less savings. When heterogeneous risk aversion is not taken into account, estimates do not seem to change significantly.

Suggested Citation

  • Michele Limosani & Emanuele Millemaci, 2012. "Precautionary Savings of Agents with Heterogeneous Risk Aversion," EERI Research Paper Series EERI_RP_2012_20, Economics and Econometrics Research Institute (EERI), Brussels.
  • Handle: RePEc:eei:rpaper:eeri_rp_2012_20
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    References listed on IDEAS

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    1. Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 69-85, Fall.
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    3. Bartzsch Nikolaus, 2008. "Precautionary Saving and Income Uncertainty in Germany – New Evidence from Microdata," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, pages 5-24.
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    More about this item

    Keywords

    Intertemporal choice; Subjective expectations; Precautionary savings; Precautionary wealth; Risk aversion.;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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