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Ambiguous Life Expectancy and the Demand for Annuities

Hippolyte d'Albis () and Emmanuel Thibault ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper, ambiguity aversion to uncertain survival probabilities is introduced in a life-cycle model with a bequest motive to study the optimal demand for annuities. Provided that annuities return is sufficiently large, and notably when it is fair, positive annuitization is known to be optimal strategy of ambiguity neutral individuals. Conversely, we show that the demand for annuities decreases with ambiguity aversion and that there exists a finite degree of aversion above which the demand is non positive : the optimal strategy is then to either sell annuities short or to hold zero annuities if the former option is not available. To conclude, ambiguity aversion appears as a relevant candidate for explaining the annuity puzzle.

Keywords: Demand for annuities; uncertain survival probabilities; ambiguity aversion; aversion à l'ambigüité; Rente viagère; probabilité de survie incertaine (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-hea, nep-ias and nep-upt
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00721281
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Published in 2012

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Related works:
Journal Article: Ambiguous life expectancy and the demand for annuities (2018) Downloads
Working Paper: Ambiguous life expectancy and the demand for annuities (2018)
Working Paper: Ambiguous life expectancy and the demand for annuities (2018)
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012) Downloads
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012) Downloads
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012) Downloads
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012) Downloads
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