Comparative Risk Aversion: A Formal Approach with Applications to Saving Behaviors

We consider a formal approach to comparative risk aversion and apply it to intertemporal choice models. This makes it possible to investigate whether standard classes of utility functions, such as those inspired from Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) or Quiggin (1982) are well ordered in terms of risk aversion. Moreover, opting for a model free approach, we establish new general results on the impact of risk aversion on saving behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion.