Fear of Ruin and Longevity Enhancing Investment

Abstract

Rectangularization of the survival probability seems to be an ongoing process. It results from a higher concentration of the ages at death; but it can be reversed by a continuous increase in the limit of life time. In this paper, we assume that these two factors are endogenous and we show that risk averse decision makers exhibit a bias towards rectangularization. More specifically, the importance of the bias depends upon the intensity of the fear of ruin which is another measure of the degree of absolute risk aversion.

Keywords: longevity, fear of ruin

JEL Classification: D81