On the precautionary motive for savings and prudence in the rank-dependent utility framework
Alain Chateauneuf (),
Ghizlane Lakhnati and
Eric Langlais ()
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Ghizlane Lakhnati: National School of Applied Sciences - Université Ibn Zohr [Agadir]
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In this paper, we deal with the basic two-period consumption–saving problem where the first- and second-period consumption utilities, v and u, are assumed to be concave, respectively, as usually. We prove that for the rank-dependent utility model, prudence is fully characterized by the convexity of u′ and strong pessimism. The paper ends by showing that for a strong risk-averse RDU decision-maker, strict pessimism allows local weak prudence, whatever the sign of u′′′, whereas for a strong risk-averse EU decision-maker local weak prudence cannot be disentangled from prudence.
Keywords: Prudence; Local weak prudence; RDU model; Strong risk aversion; Pessimism (search for similar items in EconPapers)
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Published in Economic Theory, Springer Verlag, 2016, 61 (1), pp.169-182. ⟨10.1007/s00199-015-0883-x⟩
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Journal Article: On the precautionary motive for savings and prudence in the rank-dependent utility framework (2016)
Working Paper: On the precautionary motive for savings and prudence in the rank-dependent utility framework (2016)
Working Paper: On the precautionary motive for savings and prudence in the rank dependent utility framework (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseose:hal-01302563
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