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

Authors
  • Chateauneuf, Alain
  • Lakhnati, Ghizlane
  • Langlais, Eric
Publication Date
Apr 01, 2005
Source
HAL-SHS
Keywords
Language
English
License
Unknown
External links

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 pesimism. The paper ends by showing that for a strong risk averse RDEU decision maker, strict pessimism allows local weak prudence, whatever the sign of u'''.

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