Time Inconsistent Preferences and the Annuitization Decision

Martin Weber and Philipp Schreiber

No 10383, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: When entering retirement, many people face the decision of whether they would like to receive their defined contribution account balance as a lump sum distribution or to annuitize the amount. The fact that people tend to choose a lump sum distribution even if economic reasons suggest otherwise is called the "annuity puzzle". The results of a large online survey show that people behave in a time inconsistent manner: older people have a stronger tendency to choose the lump sum than younger people. This effect, and therefore, the low real life annuitization can be explained by hyperbolic discounting. The age effect is considerably stronger for participants that answer simple time preference questions inconsistently. Our findings suggest that commitment devices can help to increase annuitization rates.

Keywords: Annuities; Annuity puzzle; Behavioral finance; Insurance; Longevity risk; Survey study (search for similar items in EconPapers)
JEL-codes: D14 D91 G02 H55 J14 J26 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-age, nep-ias and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP10383 (application/pdf)

Related works:
Journal Article: Time inconsistent preferences and the annuitization decision (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10383

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10383

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().