Is precautionary saving futile? A critique of orthodox theory
Bibliographic Data
| ID | 12229804 |
|---|---|
| Authors | Joseph G Eisenhauer (0000-0002-2280-5235, Canisius College, corresponding author) |
| Year | 1995 |
| Volume | 7 |
| Issue | 4 |
| Pages | 415-429 |
| Publication date | 1995-10-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Review of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0953-8259 • E-ISSN: 1465-3982 |
| Publisher | Taylor & Francis (PUBLISHER • GB) |
| DOI | 10.1080/09538259500000048 |
| OpenAlex | W2089169003 |
| Language | EN |
| References cited | 33 |
The orthodox theory of precautionary saving fails to distinguish risk from uncertainty, and thus assumes the existence of a probability distribution governing an individual's future income prospects. The individual is assumed to be motivated to save by the dispersion in the distribution of future income, and researchers have therefore attempted to correlate saving with income variance. However, the empirical evidence tends to refute any such correlation. This paper proposes a concept of futility to describe actions that cannot affect the external environment, and demonstrates that precautionary saving in the orthodox sense is futile inasmuch as saving cannot alter the dispersion of resources around an expected future value. Despite the inadequacy of orthodox theory, the theory is perpetuated because even futile behaviour is consistent with the neoclassical notion of rationality. The retention of an invalid theory of precaution provides a faulty basis for both empirical research and policy analysis; thus, the present paper suggests an alternative approach to precaution based on the work of Knight and Shackle, in which decisions are made under conditions of uncertainty rather than risk
Distribution (mathematics · Economics · Knight · Microeconomics · Neoclassical economics · Positive economics · Precautionary principle · Rationality · Shackle · Value (mathematics · Variance (accounting · Computer Science · Decision-Making and Behavioral Economics · Economic and Environmental Valuation · Law · Sustainable Development and Environmental Policy
Decision, order, and time in human affairs
Epistemological Problems of Economics
Understanding Consumption
Increasing risk
Rationality in Psychology and Economics
Saving and Uncertainty
Risk Aversion in the Small and in the Large
Capitalism, Socialism and Democracy
Decision, Order and Time in Human Affairs
Expectation in Economics
Precautionary Saving and the Timing of Taxes
Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective
More on Unemployment Insurance as Insurance
| Citation velocity | historical |
|---|---|
| Highly cited | No |