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Revisiting precautionary saving under ambiguity

Richard Peter

Economics Letters, 2019, vol. 174, issue C, 123-127

Abstract: I study the two-period consumption-saving problem with non-separable utility under ambiguity. Under smooth ambiguity aversion, ambiguity and greater ambiguity aversion raise optimal saving. When relative prudence in ambiguity preferences does not exceed 2, agents who perceive greater ambiguity have a higher demand for saving. While a convex marginal ambiguity function is not sufficient for precautionary saving in time-separable models (Berger, 2014), I show that it is not even necessary in a time non-separable setting.

Keywords: Ambiguity aversion; Non-expected utility; Uncertainty; Saving; Comparative statics (search for similar items in EconPapers)
JEL-codes: D15 D81 D91 E21 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:123-127