Behavioral Biases in Annuity Choice: An Experiment
Williams College Economics Department Working Paper Series
37 Pages Posted: 5 Apr 2009
Date Written: March 25, 2009
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
JEL Classification: C91, D14, D81, G22, J26
Suggested Citation: Suggested Citation