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Precautionary saving under recursive preferences

Author

Listed:
  • AJ A. Bostian

    (School of Social Sciences and Humanities, University of Tampere)

  • Christoph Heinzel

    (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

The preferences responsible for precautionary saving under recursive utility can be decomposed into two channels. One exactly mirrors expected utility, while the other is unique to recursive utility. Although these channels contain numerous competing saving effects, theoretical and numerical comparative statics point to some generalizable features. Risk preferences drive most of precautionary saving, and they are the only higher-order preferences ever expressed. But, plain 2nd-order intertemporal preferences (consumption smoothing) influence total saving far more than any other kind of preference. Precautionary responses to risks beyond 2nd order are minimal. Responses to return risk are typically negative.

Suggested Citation

  • AJ A. Bostian & Christoph Heinzel, 2024. "Precautionary saving under recursive preferences," Post-Print hal-04752951, HAL.
    • Handle: RePEc:hal:journl:hal-04752951
    DOI: 10.1016/j.jebo.2024.106770
    as

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