Changesinriskandthedemandforsaving$

How doesriskaffectsaving?Empiricalworktypicallyexaminestheeffectsofdetectible differences inriskwithinthedata.Howthesedifferencesaffectsavingintheoretical modelsdependsonthemetriconeusesforrisk.Forlabor-incomerisk,second-degree increases inriskrequireprudencetoinduceincreasedsavingdemand.However, prudenceisnotnecessaryforfirst-degreeriskincreasesandnotsufficientforhigher- degreeriskincreases.Forincreasesininterest-raterisk,aprecautionaryeffectanda substitutioneffectneedtobecompared.Thispaperprovidesnecessaryandsufficient conditionsonpreferencesforan Nth-degreechangeinrisktoincreasesaving