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On Multivariate Prudence

  • Elyès Jouini

    ()

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine)

  • Clotilde Napp

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

  • Diego Nocetti

    (CIMS - Courant Institute of Mathematical Science - New York University)

In this paper we extend the theory of precautionary saving to the case in which uncertainty is multidimensional and we develop a matrix-measure of multivariate prudence. Furthermore, we characterize comparative prudence, decreasing and increasing prudence, the effect of uncertainty on the marginal propensity to consume out of wealth, and the Drèze-Modigliani substitution effect in this multivariate setting. We also characterize the concept of multivariate downside risk aversion as a multivariate preference for harm disaggregation. We show that our definition is equivalent to a positive precautionary saving motive. We propose an alternative measure of the intensity of downside risk aversion and show that this measure is useful in understanding several economic problems that involve multivariate preferences.

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Paper provided by HAL in its series Post-Print with number halshs-00635558.

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Date of creation: 01 May 2013
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Publication status: Published, Journal of Economic Theory, 2013, 148, 3, 1255-1267
Handle: RePEc:hal:journl:halshs-00635558
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00635558
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