Survival Pessimism and the Demand for Annuities

Cormac O'Dea and David Sturrock

No 27677, NBER Working Papers from National Bureau of Economic Research, Inc

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 individuals 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 significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.

JEL-codes: D14 D84 D91 J14 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-ias and nep-rmg
Note: AG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Cormac O'Dea & David Sturrock, 2023. "Survival Pessimism and the Demand for Annuities," The Review of Economics and Statistics, vol 105(2), pages 442-457.

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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 (2019)
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