Ambiguous Life Expectancy and the Demand for Annuities

Hippolyte d'Albis and Emmanuel Thibault

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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 (search for similar items in EconPapers)
JEL-codes: D11 D81 G11 G22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012-07
New Economics Papers: this item is included in nep-ias and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://mse.univ-paris1.fr/pub/mse/CES2012/12050.pdf (application/pdf)

Related works:
Journal Article: 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 (2018)
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012)
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012)
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012)
Working Paper: Ambiguous Life Expectancy and the Demand for Annuities (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12050

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