Saving under rank-dependent utility

Summary. 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.JEL Classification Numbers: D11, D81.An anonymous referee provided helpful comments. Han Bleichrodts research was made possible by a grant from the Netherlands Organisation for Scientific Research (NWO). Louis Eeckhoudt acknowledges support from the Interuniversity Attraction Poles Programme - Belgian State - Federal Office for Scientific, Technical, and Cultural Affairs.