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Ambiguous life expectancy and the demand for annuities

Hippolyte d'Albis () and Emmanuel Thibault ()
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Emmanuel Thibault: TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole, CDED - Centre de Droit Economique et du Développement - UPVD - Université de Perpignan Via Domitia

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Abstract: In this paper, ambiguity aversion to uncertain survival probabilities is introduced in a static 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 the 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 to be a relevant candidate for explaining the annuity puzzle.

Keywords: Demand for annuities; Uncertain survival probabilities; Ambiguity aversion (search for similar items in EconPapers)
Date: 2018-10
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02072559
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Published in Theory and Decision, Springer Verlag, 2018, 85 (3-4), pp.303-319. ⟨10.1007/s11238-018-9658-8⟩

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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 (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
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-02072559

DOI: 10.1007/s11238-018-9658-8

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