Precautionary Saving and Precautionary Wealth

Christopher D. Carroll · Miles Kimball

90 citations0/0 files storedThe New Palgrave Dictionary of Economics

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Financial Literacy, Pension, Retirement Analysis Decision-Making and Behavioral Economics Economic theories and models

Abstract

Precautionary saving measures the consequences of uncertainty for the rate of change (and therefore the level) of wealth. The qualitative aspects of precautionary saving theory are now well established: an increase in uncertainty will increase the level of saving, but will reduce the marginal propensity to save. Quantitatively, theory combined with empirical estimates of risk aversion suggests that precautionary saving and precautionary wealth should be quite large. More direct empirical evidence on precautionary saving suggests that precautionary effects on saving are substantial, but the magnitude of the effects is disputed, and the different estimates are not all expressed in comparable units.

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References

2024The Quarterly Journal of Economics 1997Golden Eggs and Hyperbolic Discounting 1990Precautionary Saving in the Small and in the Large 2002Consumption Over the Life Cycle 1978Temporal Resolution of Uncertainty and Dynamic Choice Theory 1989Precautionary Saving in the Small and in the Large 1968Saving and Uncertainty: The Precautionary Demand for Saving 1989Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence

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