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Precautionary Saving against Correlation under Risk and Ambiguity

Author

Listed:
  • Takao Asano

    (Okayama University)

  • Yusuke Osaki

    (Waseda University)

Abstract

This paper considers precautionary saving against the correlation between two risky attributes (wealth and health) and investigates how the correlation affects optimal savings under multivariate preferences. The signs of higher-order cross derivatives play a key role in determining the direction of precautionary saving against such correlation. Mixed correlation averse (seeking) individuals increase (decrease) savings in response to increases in correlation. Furthermore, we introduce ambiguity to the correlation and investigate how ambiguity affects the amount of optimal savings. The analyses enable us to deepen our understanding of saving behavior under multivariate preferences in the presence of correlation.

Suggested Citation

  • Takao Asano & Yusuke Osaki, 2022. "Precautionary Saving against Correlation under Risk and Ambiguity," KIER Working Papers 1071, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:1071
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    References listed on IDEAS

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    Cited by:

    1. Takao Asano & Yusuke Osaki, 2023. "Cross Risk Apportionment and Non-financial Correlated Background Uncertainty," KIER Working Papers 1098, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    Mixed correlation aversion (seekingness); Multivariate preferences; Smooth ambiguity model; Stochastic dominance;
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