Abstract
In this paper, we deal with the basic two-period consumption–saving problem where the first- and second-period consumption utilities, \(v\) and \( u\), are assumed to be concave, respectively, as usually. We prove that for the rank-dependent utility model, prudence is fully characterized by the convexity of \(u^{\prime }\) and strong pessimism. The paper ends by showing that for a strong risk-averse RDU decision-maker, strict pessimism allows local weak prudence, whatever the sign of \(u^{\prime \prime \prime }\), whereas for a strong risk-averse EU decision-maker local weak prudence cannot be disentangled from prudence.
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Chateauneuf, A., Lakhnati, G. & Langlais, E. On the precautionary motive for savings and prudence in the rank-dependent utility framework. Econ Theory 61, 169–182 (2016). https://doi.org/10.1007/s00199-015-0883-x
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DOI: https://doi.org/10.1007/s00199-015-0883-x