Vigilance, Risk Vulnerability, and the Precautionary Augment

Miles Kimball and Vincent A. Mastantuno

No 36001, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Risk raises the expected marginal utility of a prudent agent. We define this proportional change as the precautionary augment, which measures risk-induced changes in the marginal value of saving, the Lucas Tree risk-free rate, and asset prices in a derivative-saturated market where market-state securities provide incomplete coverage against idiosyncratic risk. One agent is more vigilant than another if their precautionary augment is larger for all unfair risks. We derive and compare conditions for greater vigilance, showing how to implement the Diffidence Theorem geometrically. Because risk vulnerability is equivalent to decreasing vigilance, classic results about risk vulnerability emerge as corollaries.

JEL-codes: C02 D52 D81 E21 G12 (search for similar items in EconPapers)
Date: 2026-11
Note: AG AP
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