Comparative risk aversion: A formal approach with applications to saving behavior

Abstract : We consider a formal approach to comparative risk aversion and apply it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974) [16], Selden (1978) [27], Epstein and Zin (1989) [10] and Quiggin (1982) [25] are well ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion.
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Submitted on : Tuesday, November 20, 2012 - 9:56:24 AM
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Antoine Bommier, Arnold Chassagnon, François Le Grand. Comparative risk aversion: A formal approach with applications to saving behavior. Journal of Economic Theory, Elsevier, 2012, 147 (4), pp.1614-1641. ⟨10.1016/j.jet.2010.10.015⟩. ⟨halshs-00754583⟩

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