Some Clarifications on Precautionary Behaviors

Kimball [1990] developps a theory of prudence isomorphic to Pratt [1964] and Arrow [1965] theory of risk aversion. Nevertheless, if the Arrow-Pratt risk aversion index determines behavior in risk, it is not always the case for prudence. Moreover, concept of prudence and precautionary behavior are generally confused. In order to reconcile precautionary premium with behavior, this paper proposes some clarifications. We show, in an expected utility model as a non-expected utility one, that prudence attitude strongly depends on risk aversion.