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Title: Precautionary Saving against Correlation under Risk and Ambiguity
Authors: Asano, Takao
Osaki, Yusuke
Keywords: Mixed correlation aversion (seekingness)
Multivariate preferences
Smooth ambiguity model
Stochastic dominance
Issue Date: Jan-2022
Publisher: Institute of Economic Research, Kyoto University
Journal title: KIER Discussion Paper
Volume: 1071
Start page: 1
End page: 28
Abstract: This paper considers precautionary saving against the correlation between two risky attributes (wealth and health) and investigates how the correlation affects optimal savings under multivariate preferences. The signs of higher-order cross derivatives play a key role in determining the direction of precautionary saving against such correlation. Mixed correlation averse (seeking) individuals increase (decrease) savings in response to increases in correlation. Furthermore, we introduce ambiguity to the correlation and investigate how ambiguity affects the amount of optimal savings. The analyses enable us to deepen our under- standing of saving behavior under multivariate preferences in the presence of correlation.
URI: http://hdl.handle.net/2433/269664
Related Link: https://www.kier.kyoto-u.ac.jp/publication/?cat=en
Appears in Collections:KIER Discussion Paper (English)

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