Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable Xi dominates Yi via ith-order stochastic dominance for i = M,N. We show that the 50-50 lottery [XN + YM, YN + XM] dominates the lottery [XN + XM, YN + YM] via (N +...

How does risk affect saving? Empirical work typically examines the effects of detectible differences in risk within the data. How these differences affect saving in theoretical models depends on the metric one uses for risk. For labor-income risk, second-degree increases in risk require prudence...