An Investigation of Time Preferences, Life Expectancy and Annuity versus Lump-Sum Choices – Can Smoking Harm Long-Term Saving Decisions?

46 Pages Posted: 7 Mar 2016 Last revised: 21 Feb 2017

Abigail Hurwitz

Hebrew University, Jerusalem Israel; College of Management (Israel) - Academic Studies (COMAS)

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Date Written: Feb 19, 2017

Abstract

We investigate proprietary data from an Israeli insurance corporation, and exploit its special pricing feature which does not take health conditions (or smoking status) into account in its annuity pricing. We find, contrary to the theory suggesting that smokers have higher discount rates and to the policy pricing mechanism, that smokers do not prefer the lump-sum option. A possible explanation could be that smokers do not perceive themselves as having a shorter lifespan, meaning that they experience a certain degree of self-illusion regarding their own life expectancy. We support this conjecture with a survey that investigated life expectancy perceptions.

Keywords: Long Term Savings, Smoking, Annuity

Suggested Citation

Hurwitz, Abigail and Sade, Orly, An Investigation of Time Preferences, Life Expectancy and Annuity versus Lump-Sum Choices – Can Smoking Harm Long-Term Saving Decisions? (Feb 19, 2017). Available at SSRN: https://ssrn.com/abstract=2742652 or http://dx.doi.org/10.2139/ssrn.2742652

Abigail Hurwitz

Hebrew University, Jerusalem Israel ( email )

Mount Scopus
Jerusalem, 91905
Israel

College of Management (Israel) - Academic Studies (COMAS) ( email )

Israel

Orly Sade (Contact Author)

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
161
rank
167,250
Abstract Views
826
PlumX