Survival Pessimism and the Demand for Annuities

Cormac O'Dea and David Sturrock
Additional contact information
David Sturrock: University College London and Institute for Fiscal Studies

No 2276, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The "annuity puzzle" refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.

Keywords: Annuity Puzzle; Subjective Expectations; Survival Probabilities (search for similar items in EconPapers)
JEL-codes: D14 D84 D91 J14 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-02
New Economics Papers: this item is included in nep-exp and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Quantitative Economics (May 2020), 11(2): 637-670

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Related works:
Working Paper: Survival Pessimism and the Demand for Annuities (2020)
Working Paper: Survival pessimism and the demand for annuities (2019)
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