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

Author

Listed:
  • Alain Chateauneuf

    (CERMSEM)

  • Ghizlane Lakhnati

    (CERMSEM)

  • Eric Langlais

    (GAME)

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

Suggested Citation

  • Alain Chateauneuf & Ghizlane Lakhnati & Eric Langlais, 2005. "On the precautionary motive for savings and prudence, in an EU and a NEU framework," Cahiers de la Maison des Sciences Economiques b05034, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:b05034
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    File URL: https://halshs.archives-ouvertes.fr/halshs-00194667
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    References listed on IDEAS

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    1. Fanny Demers & Michel Demers, 1992. "Saving Under Uncertainty: A Bivariate Non-Expected Utility Approach," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 17(1), pages 61-75, June.
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    Cited by:

    1. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.

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    More about this item

    Keywords

    EU model; RDEU model; strong risk aversion; pessimism; prudence and local weak prudence;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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