Precautionary Saving with Changing Income Ambiguity

Atsushi Kajii and Jingyi Xue ()
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Jingyi Xue: School of Economics, Singapore Management University

No 2-2017, Economics and Statistics Working Papers from Singapore Management University, School of Economics

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.

Keywords: Precautionary Saving; Smooth Ambiguity; Increasing Ambiguity; Risk Comonotonicity; Informativeness (search for similar items in EconPapers)
JEL-codes: D80 D81 D91 E21 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2016-06-06
New Economics Papers: this item is included in nep-mac, nep-mic, nep-sea and nep-upt
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Citations: View citations in EconPapers (1)

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Working Paper: Precautionary saving with changing income ambiguity (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:smuesw:2017_002

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