On the precautionary motive for savings and prudence in the rank dependent utility framework

In this paper we deal with the basic two-period consumption saving problem where the first and second period consumption utility, v and u is assumed to be concave re- spectively as usually. We prove that for the rank dependent utility model, prudence is fully characterized by the convexity of u/ and strong pessimism. The paper ends by showing that for a strong risk averse RDU decision maker, strict pessimism allows local weak prudence, whatever the sign of u/// .

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Year of publication:	2014-09-29
Authors:	Chateauneuf, A. ; Lakhnati, G. ; Langlais, E.
Institutions:	Institut de Préparation à l'Administration et à la Gestion (IPAG)
Subject:	RDU Model \| Strong Risk Aversion \| Pessimism \| Prudence and LocalWeak Prudence

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Extent:	application/pdf
Series:	Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 2014-597 16 pages
Classification:	D80 - Information and Uncertainty. General ; D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010929407