Comparative risk aversion: a formal approach with applications to saving behaviors

Abstract

We consider a formal approach to comparative risk aversion and apply it to intertemporla choice models. This makes it possible to investigate whether standard classes of utility functions, such as those inspired from Khilstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) or Quiggin (1982) are well ordered in terms of rsik averson. Moreover, opting for a model free apporach, we establish new general results on the impact of risk aversion on saving behaviors. In particular, we show that risk aversion enhances precautionnary savings, clarifying the link that exists between the notions of prudence and risk aversion.