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On the precautionary motive for savings and prudence, in an EU and a NEU framework

Alain Chateauneuf (), Ghizlane Lakhnati and Eric Langlais ()

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: In this paper, we deal with the basic two-period consumption saving problem where the first and second period consumption utility, respectively v is assumed to be concave as usually. Considering the usual assumption of identify of u and v, we show that prudence is fully characterized by the convexity of u' in the EU model. More interesting we prove that for the RDEU model, prudence is fully characterized by the convexity of u' and strong pessimism. The paper ends by showing that for a strong risk adverse RDEU decision maker, strict pessimism allows local weak prudence, whatever the sign of u.

Keywords: EU model; RDEU model; strong risk aversion; pessimism; prudence and local weak prudence (search for similar items in EconPapers)
JEL-codes: D80 E21 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-04
New Economics Papers: this item is included in nep-mac
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ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/B05034.pdf (application/pdf)

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Working Paper: On the precautionary motive for savings and prudence, in an EU and a NEU framework (2005) Downloads
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