Publication Type

Working Paper

Publication Date

6-2016

Abstract

We study a two-period saving model where theagent’s future income might be ambiguous. Our agent has a version of the smoothambiguity decision criterion (Klibano, Marinacci and Mukerji (2005)), where theagent’s perception about ambiguity is described by a second-order belief overfirst-order risks. We model increasing ambiguity as a spreading-out of thesecond-order belief. We show that under a “Risk Comonotonicity” condition, ouragent saves more when ambiguity in future income increases. We argue that thecondition is indispensable for our result.

Keywords

Precautionary Saving, Smooth Ambiguity, Increasing Ambiguity, Risk Comonotonicity, Informativeness

Discipline

Economic Theory

Research Areas

Economic Theory

First Page

1

Last Page

10

Publisher

Singapore Management University

City or Country

Singapore

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Share

COinS