Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving

Luigi Ventura and Charles Horioka

No 2025-19, AGI Working Paper Series from Asian Growth Research Institute

Abstract: In this paper, we first show that a particular form of precautionary saving, which we will call "intertemporal precautionary saving" to distinguish it from purely intertemporal and purely precautionary saving, will inevitably arise in the case of pure (downside) risk as long as consumers are risk-averse, even if they are not prudent. We then present a simple example that shows that even pure precautionary saving (i.e., saving generated by risk alone without effects on expected income) may arise as long as consumers are risk-averse, even if they are not prudent and even if risk is speculative (two-sided).

Keywords: household saving; precautionary saving; prudence; pure risk; risk aversion; saving; speculative risk (search for similar items in EconPapers)
JEL-codes: D11 D14 D15 D81 E21 G51 (search for similar items in EconPapers)
Date: 2025-12-08
New Economics Papers: this item is included in nep-eur and nep-upt
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Related works:
Working Paper: Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving (2025)
Working Paper: Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving (2025)
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