Precautionary Saving Behaviour under Ambiguity

Richard M. H. Suen

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses a two-period model in which a consumer faces a future income risk but is uncertain about its probability distribution. We derive three sets of sufficient conditions under which a consumer with generalised recursive smooth ambiguity (GRSA) preferences will save more under ambiguity than in a deterministic environment. Our results show how precautionary saving is jointly determined by attitudes toward atemporal risk, ambiguity and intertemporal substitution. We also find a close connection between risk prudence under non-expected utility and precautionary saving under GRSA preferences.

Keywords: Precautionary Saving; Risk Aversion; Intertemporal Substitution; Smooth Ambiguity Preferences. (search for similar items in EconPapers)
JEL-codes: D81 E21 (search for similar items in EconPapers)
Date: 2022-08-02
New Economics Papers: this item is included in nep-mic, nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114382

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