International Journal of Business and Economics Volume 17, No. 1 June, 2018

Ambiguity and the Excess Consumption Growth Puzzle

Aram Balagyozyan

Kania School of Management, The University of Scranton, U.S.A.

Christos Giannikos

Zicklin School of Business, Baruch College, The City University of New York, U.S.A.

Abstract

Using a two-period non-stochastic life-cycle model, Hauenschild and Stahlecker (2001) show that when information about future labor income is ambiguous, individuals may engage in precautionary savings even if their marginal utility is not convex. We extend the methodology of Houenschild and Stahlecker to a model with standard preferences and demonstrate the precautionary savings that consumers accumulate due to ambiguity and fuzzy decision-making possibly explain the “excess consumption growth puzzle.”

Keywords：ambiguity, precautionary savings, consumption growth puzzle, fuzzy sets, intertemporal life-cycle models.

JEL Classifications：D11, D91, E21.

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