Even imprudent risk lovers may engage in precautionary saving

Marco Sorge

Journal of Economics, 2024, vol. 143, issue 1, No 4, 109 pages

Abstract: Abstract Recent developments in dynamic consumption theory have shown that risk-loving agents, much like their risk-averse analogues, can exhibit downside risk aversion (prudence) and thus demand precautionary savings. I complement this finding by showing that risk-seeking preferences also magnify the role of natural borrowing limits in shaping consumers’ behavior, causing risk lovers to increase savings against income uncertainty in cases where risk averters would not: even imprudent risk lovers may engage in precautionary saving.

Keywords: Risk lovers; Precautionary saving; Prudence (search for similar items in EconPapers)
JEL-codes: D11 D81 E21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:143:y:2024:i:1:d:10.1007_s00712-024-00865-y

DOI: 10.1007/s00712-024-00865-y

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