When an entire society is equally clueless about the future, wealth inequality actually goes down.
March 24, 2026
Original Paper
Precautionary Saving under Ambiguity: Effects on Wealth Inequality
SSRN · 6395081
The Takeaway
While we usually assume economic uncertainty hurts the poor most, this model shows that if everyone shares the same level of 'ambiguity aversion,' the rich reduce their consumption and save so aggressively that it compresses the wealth distribution across the whole economy.
From the abstract
This paper examines how precautionary saving under ambiguity varies with wealth and quantifies the distributional consequences through a general equilibrium heterogeneous-agent model. Using α-maxmin preferences, we first show analytically that ambiguity aversion raises precautionary saving relative to expected utility, but this saving-rate differential vanishes as wealth grows. We embed this mechanism in a Krusell-Smith economy where individuals face uncertainty about business cycle persistence,