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 = Ibn Zohr University [Agadir]

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Abstract: 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)
Date: 2016-01
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Published in Economic Theory, 2016, 61 (1), pp.169-182. ⟨10.1007/s00199-015-0883-x⟩

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Related works:
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 (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:pseptp:hal-01302563

DOI: 10.1007/s00199-015-0883-x

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