Behavioral Biases in Annuity Choice: An Experiment

Robert Gazzale and Lina Walker

No 2009-01, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: We conduct a neutral-context laboratory experiment to systematically investigate the role of the hit-by-bus concern in explaining the annuitization puzzle: the low rate of retirement-asset annuitization relative to the predictions of standard models. We vary endowed asset (annuity vs. stock of wealth vs. no explicit endowment), and find a strong endowment effect. Furthermore, we find that the ordering of survival risks matters. Compared to a frame in which a single draw from a known distribution determines survival outcome, annuity choice is lower when subjects must sequentially survive early periods to reach periods in which the annuity dominates. We conclude with policy implications.

Keywords: experimental economics; behavioral; retirement; annuities (search for similar items in EconPapers)
JEL-codes: C91 D14 D81 G22 J26 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-03
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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