Precautionary saving and fuzzy information
TL;DR: The authors consider a two-period life-cycle model where uncertainty about future labour income is modelled by a fuzzy set and apply a defuzzification strategy that explicitly takes the individual's behaviour towards risk into account.
About: This article is published in Economics Letters.The article was published on 2001-01-01. It has received 7 citations till now. The article focuses on the topics: Precautionary savings & Defuzzification.
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TL;DR: The Arrow-Pratt theory of risk aversion was shown to be isomorphic to the theory of optimal choice under risk in this paper, making possible the application of a large body of knowledge about risk aversion to precautionary saving.
Abstract: The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect
1,944 citations
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TL;DR: Jamel as discussed by the authors is an agent-based framework dedicated to modeling, simulation and analysis of complex monetary economies, and it contains the scenario used in the paper "Deleveraging crises and deep recessions: a behavioural approach" by Pascal Seppecher and Isabelle Salle.
Abstract: Jamel (Java Agent-based Macro-Economic Laboratory) is an open source agent-based framework dedicated to the modeling, the simulation and the analysis of complex monetary economies. This version (20140206) contains the scenario used in the paper "Deleveraging crises and deep recessions: a behavioural approach" by Pascal Seppecher and Isabelle Salle.
41 citations
Cites background from "Precautionary saving and fuzzy info..."
...This behaviour has been characterized as prudence in the related literature about savings and uncertainty that we follow there – e.g. Kimball (1990), Carroll et al. (1994) or Hauenschild and Stahlecker (2001)....
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TL;DR: This article developed a decentralized and micro-founded macro-economic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firms' leverage and households' precautionary saving behavior.
Abstract: Macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings. Standard micro-founded macro-economic models account for these patterns through exogenous and persistent shocks. In this paper, we develop a fully decentralized and micro-founded macro-economic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firms' leverage and households' precautionary saving behaviour. A major emergent property of our model is precisely the complex successions of stable and unstable macro-economic regimes. The model is further able to account for a wide spectrum of macro-and micro empirical regularities. Within this framework, we analyse a series of macro-economic phenomena of key relevance in the current macro-economic debate, especially the occurrence of deleveraging crises and Fisherian debt-deflation recessions. Our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation-ary path are critical determinants of the severity of the recession, and the chances of recovery.
34 citations
TL;DR: In this article, the authors consider a model of an oligopolistic market with heterogeneous firms and products where neither the cost nor the demand functions are common knowledge and each firm only has some vague ideas about the price strategies adopted by its competitors which is modelled by a fuzzy set.
Abstract: We consider a model of an oligopolistic market with heterogeneous firms and products where neither the cost nor the demand functions are common knowledge. Instead, each firm only has some vague ideas about the price strategies adopted by its competitors which is modelled by a fuzzy set. In analogy to the notion of an "equilibrium of actions and beliefs" we define and characterize a generalized Nash-equilibrium and show its existence under general conditions. Furthermore, the impact of the fuzzy information on the equilibrium outcome is analyzed by means of a comparative static analysis within a particular model framework.
4 citations
27 May 2007
TL;DR: The fuzzy information analysis method is used to forecast the peak discharge, with the result in accordance with the actual event, and can be seen as a new and effective method of flood prediction and forecasting.
Abstract: The relationship between the peak stage and peak discharge is influenced by many factors in the flood system. Therefore, different peak discharges may occur under the same peak stage, while the same peak discharge may also occur under the different peak stages. If the peak stage set with similar peak discharges is taken as the fuzzy subset in the stage universe, then the membership function of these fuzzy subsets can be hypothesized to manifest a normal distribution graph. According to a k and b k , the mid-value of the universe element of the peak stage can be substituted into the normal distribution graph, and the fuzzy relational matrix can be obtained. Thus, the peak discharge can be calculated according to the peak stage using the fuzzy deduction theory. The relationship between the peak stage and peak discharge as Q = f(H) has an important impact on the determination of the peak discharge during the high-water level period in the flood forecast. In this paper, the fuzzy information analysis method is used to forecast the peak discharge, with the result in accordance with the actual event. This method can be seen as a new and effective method of flood prediction and forecasting.
References
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TL;DR: In this paper, the authors derived closed-form solutions for consumption with stochastic labor income and constant relative risk aversion utility, and used a numerical technique to give an accurate approximation to the solution.
Abstract: No one has derived closed-form solutions for consumption with stochastic labor income and constant relative risk aversion utility. A numerical technique is used here to give an accurate approximation to the solution. The resulting consumption function is often dramatically different than the certainty equivalence solution typically used, in which consumption is proportional to the sum of financial wealth and the present value of expected future income. The results help explain three important empirical consumption puzzles: excess sensitivity of consumption to transitory income, high growth of consumption in the presence of a low risk-free interest rate, and underspending of the elderly.
877 citations
"Precautionary saving and fuzzy info..." refers background in this paper
...1An (incomplete) list of the most important papers contains Skinner (1988), Zeldes (1989), Caballero (1990, 1991), Kimball (1990), Hubbard et al. (1994), and Carroll and Samwick (1997, 1998)....
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TL;DR: This article used the Panel Study of Income Dynamics to provide evidence that wealth is systematically higher for consumers with greater income uncertainty than those with less income uncertainty, and found that consumers behave in accordance with the "buffer-stock" models of saving described in Carroll (1992) or Deaton (1991), in which consumers hold wealth principally to insulate consumption against near term fluctuations in income.
Abstract: This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with greater income uncertainty. However, the apparent pattern of precautionary saving is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be less sensitive to uncertainty in permanent income than implied by that model. Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the 'buffer-stock' models of saving described in Carroll (1992) or Deaton (1991), in which consumers hold wealth principally to insulate consumption against near term fluctuations in income.
634 citations
TL;DR: The authors used the Panel Study of Income Dynamics to provide evidence that wealth is systematically higher for consumers with higher income uncertainty than those with lower income uncertainty, and found that over most of their working life time, consumers behave in accordance with the "buffer-stock" models of saving described in Carroll (1992, 1997) or Deaton (1991).
592 citations
TL;DR: The authors showed that precautionary savings can go a long way in making the excess-growth, excess-smoothness and excess-sensitivity features of consumption consistent with the stochastic processes of labor income observed in the U.S. at the microeconomic level.
570 citations
"Precautionary saving and fuzzy info..." refers background in this paper
...(1)An (incomplete) list of the most important papers contains Skinner (1988), Zeldes (1989), Caballero (1990, 1991), Kimball (1990), Hubbard et al. (1994), and Carroll and Samwick (1997, 1998)....
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...1An (incomplete) list of the most important papers contains Skinner (1988), Zeldes (1989), Caballero (1990, 1991), Kimball (1990), Hubbard et al. (1994), and Carroll and Samwick (1997, 1998)....
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...(1)An (incomplete) list of the most important papers contains Skinner (1988), Zeldes (1989), Caballero (1990, 1991), Kimball (1990), Hubbard et al....
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...Recently, the problem of precautionary savings has been studied intensively in the literature both 1theoretical and applied, because it turned out that several empirical patterns of consumption and especially some so-called consumption puzzles (see Caballero, 1990) could be explained by prudence....
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TL;DR: In this paper, the authors present a derivation of a (local) measure of risk aversion for delayed risks which, like the Pratt measure in the timeless context, represents twice the risk premium per unit of variance for infinitesimal risks.
557 citations