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Precautionary Saving with Changing Income Ambiguity

Author

Listed:
  • Atsushi Kajii

    (Kyoto University, Singapore Management University (Visiting Professor))

  • Jingyi Xue

    (School of Economics, Singapore Management University)

Abstract

We study a two-period saving model where the agent’s future income might be ambiguous. Our agent has a version of the smooth ambiguity decision criterion (Klibanoff, Marinacci and Mukerji (2005)), where the agent’s perception about ambiguity is described by a second-order belief over first-order risks. We model increasing ambiguity as a spreading-out of the second-order belief. We show that under a “Risk Comonotonicity” condition, our agent saves more when ambiguity in future income increases. We argue that the condition is indispensable for our result.

Suggested Citation

  • Atsushi Kajii & Jingyi Xue, 2016. "Precautionary Saving with Changing Income Ambiguity," Economics and Statistics Working Papers 2-2017, Singapore Management University, School of Economics.
    • Handle: RePEc:ris:smuesw:2017_002
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    Cited by:

    1. Eric André & Antoine Bommier & François Le Grand, 2022. "The impact of risk aversion and ambiguity aversion on annuity and saving choices," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 33-56, August.

    More about this item

    Keywords

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    JEL classification:

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

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