The Effect of Time and Ambiguity Preferences on Saving and Insurance

18 Pages Posted: 14 Aug 2014 Last revised: 11 Apr 2015

See all articles by Jingyuan Li

Jingyuan Li

Lingnan University - Department of Finance and Insurance

Jianli Wang

Nanjing University of Aeronautics and Astronautics - College of Economics and Management

Date Written: April 11, 2015

Abstract

In this paper, we study two classical saving-insurance problems for the intertemporal version developed by Hayashi and Miao (2011) of the smooth ambiguity model of Klibanoff et al. (2005). These models put risk, ambiguity and time preferences together in a Kreps-Porteus aggregator, and disentangle the effects among risk, ambiguity and time preferences. We show that the concepts and techniques developed by Topkis (1998) and others can be used to obtain a set of simple and intuitive sufficient conditions such that risk, ambiguity and time preferences together always raise the demand for saving and self-insurance.

Keywords: Precautionary saving; Self-insurance; Self-protection; Smooth ambiguity aversion; Intertemporal substitution; Risk aversion

JEL Classification: D81, D91, E21, G11, D61

Suggested Citation

Li, Jingyuan and Wang, Jianli, The Effect of Time and Ambiguity Preferences on Saving and Insurance (April 11, 2015). Available at SSRN: https://ssrn.com/abstract=2479709 or http://dx.doi.org/10.2139/ssrn.2479709

Jingyuan Li (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China

Jianli Wang

Nanjing University of Aeronautics and Astronautics - College of Economics and Management ( email )

Nanjing
China

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