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On the precautionary motive for savings and prudence, in an EU and a NEU framework

Author

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  • Alain Chateauneuf

    (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Ghizlane Lakhnati

    (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Eric Langlais

    (GAME - Groupe d'Analyse en Management et Economie - Université Nancy 2 - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we deal with the basic two-period consumption saving problem where the first and second period consumption utility, respectively v is assumed to be concave as usually. Considering the usual assumption of identify of u and v, we show that prudence is fully characterized by the convexity of u' in the EU model. More interesting we prove that for the RDEU model, prudence is fully characterized by the convexity of u' and strong pesimism. The paper ends by showing that for a strong risk averse RDEU decision maker, strict pessimism allows local weak prudence, whatever the sign of u'''.

Suggested Citation

  • 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.
    • Handle: RePEc:hal:cesptp:halshs-00194667
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00194667
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    Cited by:

    1. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.

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    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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