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How changing prudence and risk aversion affect optimal saving

Bauer, Christian; Buchholz, Wolfgang - 2008

We show how optimal saving in a two-period model is affected when prudence and risk aversion of the underlying utility … function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate …

Persistent link: https://www.econbiz.de/10010264467

Apportioning of risks via stochastic dominance

Eeckhoudt, Louis; Schlesinger, Harris; Tsetlin, Ilia - 2008

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 +...

Persistent link: https://www.econbiz.de/10010264492

Putting risk in its proper place

Eeckhoudt, Louis; Schlesinger, Harris - 2005

This paper examines preferences towards particular classes of lottery pairs. We show how concepts such as prudence and …

Persistent link: https://www.econbiz.de/10010271070

Higher Order Risk Preferences: New Experimental Measures, Determinants and Field Behavior

Schneider, Sebastian O.; Sutter, Matthias - 2020

We use a novel method to elicit and measure higher order risk preferences (prudence and temperance) in an experiment … prudence are strongly related to adolescents' field behavior, including their financial decision making, eco-friendly behavior …, and health status, including addictive behavior. Most importantly, we show that dropping prudence and temperance from the …

Persistent link: https://www.econbiz.de/10012314831

A critique of the literature on the US financial debt crisis

Stein, Jerome L. - 2010

A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate...

Persistent link: https://www.econbiz.de/10010266065

Changes in risk and the demand for saving

Eeckhoudt, Louis; Schlesinger, Harris - 2008

-income risk, second-degree increases in risk require prudence to induce increased saving demand. However, prudence is not …

Persistent link: https://www.econbiz.de/10010264428

Aggressive oil extraction and precautionary saving: Coping with volatility

van der Ploeg, Frederick - 2010

analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed … brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves …

Persistent link: https://www.econbiz.de/10010270525

The Social Cost of Carbon with Intragenerational Inequality under Economic Uncertainty

van der Ploeg, Rick; Emmerling, Johannes; Groom, Ben - 2022

A formula is derived for the social cost of carbon (SCC) that takes account of intragenerational income inequality and its evolution with economic growth. The social discount rate (SDR) should be adjusted to account for intragenerational and intergenerational inequality aversion and for risk...

Persistent link: https://www.econbiz.de/10013353389

Loss Aversion, Risk Aversion, and the Shape of the Probability Weighting Function

Rablen, Matthew D. - 2023

Loss aversion, risk aversion, and the probability weighting function (PWF) are three central concepts in explaining decisionmaking under risk. I examine interlinkages between these concepts in a model of decisionmaking that allows for loss averse/tolerant stochastic reference dependence and...

Persistent link: https://www.econbiz.de/10014377465

Application of stochastic optimal control to financial market debt crises

Stein, Jerome L. - 2009

This interdisciplinary paper explains how mathematical techniques of stochastic optimal control can be applied to the recent subprime mortgage crisis. Why did the financial markets fail to anticipate the recent debt crisis, despite the large literature in mathematical finance concerning optimal...

Persistent link: https://www.econbiz.de/10010276757