On the Precautionary Motive for Savings and Prudence, in an EU and a Neu Framework

19 Pages Posted: 9 Apr 2005

See all articles by Eric Langlais

Eric Langlais

EconomiX, CNRS & University of Paris Ouest

Alain Chateauneuf

University of Paris

Ghyselane Lakhnati

University of Paris

Date Written: March 25, 2005

Abstract

In this paper we deal with the basic two-period consumption saving problem where the first and second period consumption utility, respectively v and u is assumed to be concave as usually. Considering the usual assumption of identity of u and v, we show that prudence is fully characterized by the convexity of u' in the EU model. More interesting we prove that for the RDEU model, prudence is fully characterized by the convexity of u' and strong pessimism. The paper ends by showing that for a strong risk averse RDEU decision maker, strict pessimism allows local weak prudence, whatever the sign of u'''.

Keywords: EU Model, RDEU Model, Strong Risk Aversion, Pessimism, Prudence and Local Weak Prudence

JEL Classification: D10, D80, D90

Suggested Citation

Langlais, Eric and Chateauneuf, Alain and Lakhnati, Ghyselane, On the Precautionary Motive for Savings and Prudence, in an EU and a Neu Framework (March 25, 2005). Available at SSRN: https://ssrn.com/abstract=693721 or http://dx.doi.org/10.2139/ssrn.693721

Eric Langlais (Contact Author)

EconomiX, CNRS & University of Paris Ouest ( email )

200 Avenue de la République
Nanterre, 92200
France

HOME PAGE: http://economix.u-paris10.fr/fr/membres/?id=889

Alain Chateauneuf

University of Paris ( email )

DEA MMME
106-112, Boulevard de l'Hopital
Paris cedex 13, 75647
France

Ghyselane Lakhnati

University of Paris ( email )

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Paris, IL
France

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