Health shocks, risk preferences and annuity choices

Johannes Hagen (), Michal Hodor () and Abigail Hurwitz ()
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Johannes Hagen: Jönköping University
Michal Hodor: Tel Aviv University
Abigail Hurwitz: The Hebrew University of Jerusalem

No 2024:4, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: This study examines the simultaneous impact of risk type and risk preferences on annuity demand. Through a quasi-experimental design that leverages individuals’ reactions to their first malignant cancer diagnosis around retirement, we show that a 30% reduction in the present value of life annuities from decreased life expectancy results in just a 5% decline in annuitization rates. We further demonstrate that risk-averse individuals drive this effect, whereas the risk-tolerant remain unchanged in their demand. Our findings suggest that risk-averse individuals view life annuities as a means to ensure against longevity risk.

Keywords: Annuity puzzle; Adverse selection; Advantageous selection; Health shocks (search for similar items in EconPapers)
JEL-codes: D12 D14 G50 G52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2024-02-22
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2024_004

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