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Even imprudent risk lovers may engage in precautionary saving

Author

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  • Marco M. Sorge

    (University of Salerno, University of Göttingen and CSEF)

Abstract

Recent developments in dynamic consumption theory have shown that risk-loving agents, much like their risk-averse analogues, can exhibit downside risk aversion (prudence) and thus demand precautionary savings. I complement this finding by showing that risk-seeking preferences also magnify the role of natural borrowing limits in shaping consumers’ behavior, causing risk lovers to increase savings against income uncertainty in cases where risk averters would not: even imprudent risk lovers may engage in precautionary saving.

Suggested Citation

  • Marco M. Sorge, 2024. "Even imprudent risk lovers may engage in precautionary saving," Journal of Economics, Springer, vol. 143(1), pages 101-109, September.
    • Handle: RePEc:kap:jeczfn:v:143:y:2024:i:1:d:10.1007_s00712-024-00865-y
    DOI: 10.1007/s00712-024-00865-y
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    References listed on IDEAS

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    11. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
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    More about this item

    Keywords

    Risk lovers; Precautionary saving; Prudence;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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