Survival pessimism and the demand for annuities

Cormac O'Dea and David Sturrock (david_s@ifs.org.uk)
Additional contact information
David Sturrock: Institute for Fiscal Studies and Institute for Fiscal Studies

No W19/02, IFS Working Papers from Institute for Fiscal Studies

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 indi-viduals 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 signi?cant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle. This report was updated on 6/8/2020.

Keywords: Annuity Puzzle; Subjective Expectations; Survival Probabilities (search for similar items in EconPapers)
Date: 2019-01-25
New Economics Papers: this item is included in nep-ias, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Survival Pessimism and the Demand for Annuities (2021)
Working Paper: Survival Pessimism and the Demand for Annuities (2020)
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