RIEB Discussion Paper Series No.2025-28

Title

Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving

Abstract

In this paper, we first show that a particular form of precautionary saving, which we will call "intertemporal precautionary saving" to distinguish it from purely intertemporal and purely precautionary saving, will inevitably arise in the case of pure (downside) risk as long as consumers are risk-averse, even if they are not prudent. We then present a simple example that shows that even pure precautionary saving (i.e., saving generated by risk alone without effects on expected income) may arise as long as consumers are risk-averse, even if they are not prudent and even if risk is speculative (two-sided).

Keywords

Household saving; Precautionary saving; Prudence; Pure risk; Risk aversion; Saving; Speculative risk

JEL Classification

D11, D14, D15, D81, E21, G51

Inquiries

Luigi VENTURA
Department of Economics and Law, Sapienza, University of Rome, ITALY

Charles Yuji HORIOKA
Research Institute for Economics and Business Administration,
Kobe University, JAPAN
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059
Institute of Social and Economic Research, Osaka University, JAPAN
Asian Growth Research Institute, JAPAN
National Bureau of Economic Research, U.S.A.