Precautionary saving and the notion of ambiguity prudence

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Publication:2452993





A simple two-period model is considered which is not only risky but also ambiguous. The probabilities of the second-period final wealth consist of a set of probabilities, depending on a parameter \(\theta\) for which the agent has prior beliefs. The concept of ambiguity prudence is introduced. The conditions for ambiguity prudence are considered, basically those related to ambiguity aversion.











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