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Comparative risk aversion: A formal approach with applications to saving behavior

Author

Listed:
  • Antoine Bommier

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich])

  • Arnold Chassagnon

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)

  • François Le Grand

    (EM - emlyon business school)

Abstract

We consider a formal approach to comparative risk aversion and apply it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974) [16], Selden (1978) [27], Epstein and Zin (1989) [10] and Quiggin (1982) [25] are well ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion.

Suggested Citation

  • Antoine Bommier & Arnold Chassagnon & François Le Grand, 2012. "Comparative risk aversion: A formal approach with applications to saving behavior," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00754583, HAL.
    • Handle: RePEc:hal:pseose:halshs-00754583
    DOI: 10.1016/j.jet.2010.10.015
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Precautionary savings; Risk aversion; Saving behavior;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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