Ambiguity and the Excess Consumption Growth Puzzle

Aram Balagyozyan and Christos Giannikos

International Journal of Business and Economics, 2018, vol. 17, issue 1, 5-15

Abstract: Using a two-period non-stochastic life-cycle model, Hauenschild and Stahlecker (2001) show that when information about future labor income is ambiguous, individuals may engage in precautionary savings even if their marginal utility is not convex. We extend the methodology of Houenschild and Stahlecker to a model with standard preferences and demonstrate the precautionary savings that consumers accumulate due to ambiguity and fuzzy decision-making possibly explain the "excess consumption growth puzzle."

Keywords: ambiguity; precautionary savings; consumption growth puzzle; fuzzy sets; intertemporal life-cycle models (search for similar items in EconPapers)
JEL-codes: D11 D91 E21 (search for similar items in EconPapers)
Date: 2018
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