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Risk Aversion and Precautionary Savings in Dynamic Settings

Antoine Bommier () and François Le Grand ()
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Antoine Bommier: Department of Management, Technology and Economics, ETH Zurich, 8092 Zurich, Switzerland
François Le Grand: emlyon Business School, 69130 Écully, France; ETH Zurich, 8092 Zurich, Switzerland

Management Science, 2019, vol. 65, issue 3, 1386-1397

Abstract: We study the saving behavior of infinitely long-lived agents who face income uncertainty and deterministic interest rates. Using monotone recursive preferences, we prove that risk aversion unambiguously increases savings. The result accounts for possibly binding borrowing constraints and holds for very general specification of income uncertainty, which can follow any kind of stochastically monotone process.

Keywords: risk aversion; precautionary savings; recursive models; risk-sensitive preferences; monotonicity (search for similar items in EconPapers)
Date: 2019
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