Precautionary saving and fuzzy information

We consider a two-period life-cycle model where uncertainty about future la bour income is modelled by a fuzzy set. Applying a defuzzification strategy that explicitly takes the individual's behaviour towards risk into account , we show that pessimistic individuals engage in precautionary savings even if marginal utility is not convex, e.g. in case of a quadratic utility fun ction. (C) 2001 Elsevier Science B.V. All rights reserved. JEL classificati on: D81; D91.