Anticipated and Experienced Regret in Annuity Choices: An Experimental Study

54 Pages Posted: 7 May 2024

See all articles by Koen van Boxel

Koen van Boxel

Institute for Risk and Insurance, Leibniz University Hannover

Abigail Hurwitz

Hebrew University, Jerusalem Israel

Sven Nolte

Radboud University

Judith C. Schneider

Leibniz Universität Hannover - Faculty of Economics and Management

Date Written: May 3, 2024

Abstract

Annuities are a central element to secure financial well-being in retirement. At the same time, they are a commitment until death, which can lead to significant regret due to the irreversibility of the annuity decision. Principal-protected annuities are a financial vehicle designed to overcome this regret. In a comprehensive experimental framework, we explore how anticipated and experienced regret influence individuals’ choices regarding annuities and various principal-protected options. We elicit regret aversion based on a simple lottery task prior to our main experiment. In the main experiment, we account for longevity, unforeseen expenses, and bequest motives. We find that consistently regret-averse individuals have significantly lower annuitization rates, persisting even with principal protection. Customization of principal protection, however, counteracts the impact of regret aversion. We also find that sequential feedback affects experienced regret, particularly for those who do not anticipate regret. Thus, we suggest that anticipated regret serves as a reference point for experienced regret. Our results highlight the potential of customizable principal protection to increase demand for life annuities.

Keywords: Experienced regret, Anticipated regret, Annuities

JEL Classification: D14, D15, G22, G41, G51

Suggested Citation

van Boxel, Koen and Hurwitz, Abigail and Nolte, Sven and Schneider, Judith C., Anticipated and Experienced Regret in Annuity Choices: An Experimental Study (May 3, 2024). Available at SSRN: https://ssrn.com/abstract=4816062 or http://dx.doi.org/10.2139/ssrn.4816062

Koen Van Boxel (Contact Author)

Institute for Risk and Insurance, Leibniz University Hannover ( email )

Hannover, Lower Saxony 30159
Germany

Abigail Hurwitz

Hebrew University, Jerusalem Israel ( email )

Mount Scopus
Jerusalem, 91905
Israel

Sven Nolte

Radboud University ( email )

Nijmegen
Netherlands

Judith C. Schneider

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Königsworther Platz 1
Hannover, 30167
Germany

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