At least three types of precautionary motives are directly relevant to an agent's demand for assets. (I.) The precautionary saving motive, or prudence, can cause an agent to respond to a risk by accumulating more wealth. (II.) The desire to moderate total exposure to risk, or temperance, can...

"Buffer-stock" models of saving are now standard in the consumption literature. This paper builds theoretical foundations for rigorous understanding of the main features of such models, including the existence of a target wealth ratio and the proposition that aggregate consumption growth equals...