Saving under Rank-Dependent Utility
In this note we use the rank-dependent utility (RDU) model to analyze saving decisions. The RDU model enables us to separate the effects of pessimism and optimism on saving from that of concavity of the utility function. While pessimism induces more saving, the importance of this effect is shown to depend upon properties of the utility function such as prudence and temperance.
- expected utility
- utility theory (mathematical models)
- concave functions
- saving & investment
- rank-dependent utility