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Risk Aversion and Precautionary Savings in Dynamic Settings
Journal article   Peer reviewed

Risk Aversion and Precautionary Savings in Dynamic Settings

Antoine Bommier and François Le Grand
Management Science, Vol.65(3), pp.1386-1397
01/03/2019

Abstract

risk aversion precautionary savings recursive models risk-sensitive preferences monotonicity
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.
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6 Social Sciences
6.122 Economic Theory
6.122.1287 Risk Preferences
Web of Science research areas
Management
Operations Research & Management Science
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