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Risk Aversion and Precautionary Savings in Dynamic Settings

Author

Listed:
  • Antoine Bommier

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich])

  • François Le Grand

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich], EM - EMLyon Business School)

Abstract

We study the saving behavior of infinitely long-lived agents who face income uncertainty and deterministic interest rates. Using monotone recursive preferences, we prove that risk aversion unambiguously increases savings. The result accounts for possibly binding borrowing constraints and holds for very general specification of income uncertainty, which can follow any kind of stochastically monotone process.

Suggested Citation

  • Antoine Bommier & François Le Grand, 2019. "Risk Aversion and Precautionary Savings in Dynamic Settings," Post-Print hal-02312171, HAL.
    • Handle: RePEc:hal:journl:hal-02312171
    DOI: 10.1287/mnsc.2017.2959
    as

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    Citations

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    Cited by:

    1. Eric André & Antoine Bommier & François Le Grand, 2022. "The impact of risk aversion and ambiguity aversion on annuity and saving choices," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 33-56, August.
    2. Dennis W. Jansen & Liqun Liu, 2022. "Portfolio choice in the model of expected utility with a safety-first component," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 187-207, June.
    3. Emmanuelle Augeraud-Véron & Marc Leandri, 2023. "Optimal self-protection and health risk perception: bridging the gap between risk theory and the Health Belief Model," EconomiX Working Papers 2023-12, University of Paris Nanterre, EconomiX.
    4. Pavan, Marina & Barreda-Tarrazona, Iván, 2020. "Should I default on my mortgage even if I can pay? Experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).

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