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On the precautionary motive for savings and prudence in the rank dependent utility framework

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  • A.Chateauneuf
  • G.Lakhnati
  • E.Langlais

Abstract

In this paper we deal with the basic two-period consumption saving problem where the first and second period consumption utility, v and u is assumed to be concave re- spectively as usually. We prove that for the rank dependent utility model, prudence is fully characterized by the convexity of u/ and strong pessimism. The paper ends by showing that for a strong risk averse RDU decision maker, strict pessimism allows local weak prudence, whatever the sign of u/// .

Suggested Citation

  • A.Chateauneuf & G.Lakhnati & E.Langlais, 2014. "On the precautionary motive for savings and prudence in the rank dependent utility framework," Working Papers 2014-597, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2014-597
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    References listed on IDEAS

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    More about this item

    Keywords

    RDU Model; Strong Risk Aversion; Pessimism; Prudence and LocalWeak Prudence.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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