Abstract
This paper examines precautionary paying motive for stochastic improvements with a decision maker who is ambiguous about the future risk that she will face and whose preferences are represented by a generalized two-period smooth ambiguity model that separates risk, ambiguity and time preferences. Holding risk preferences, beliefs and time preferences fixed, we derive sufficient conditions for a change in ambiguity aversion alone to increase the strength of the precautionary paying motive.
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