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wp201902.pdf
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The “annuity puzzle” refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that indi-viduals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.
This report was updated on 6/8/2020.
Authors
![Cormac O'Dea](/sites/default/files/styles/square_desktop/public/2022-07/Cormac%20O%27Dea.jpg?itok=-0xKr2ar)
Research Associate Yale University
Cormac is a Research Associate of the IFS, an Assistant Professor of Economics at the Yale University and Research Fellow at the NBER.
![David Sturrock](/sites/default/files/styles/square_desktop/public/2022-10/David_Sturrock_2%20-%20Copy.jpg?itok=P-GeTjhs)
Senior Research Economist
David’s research covers household wealth, intergenerational transfers, social mobility, pensions taxation, and health and work at older ages.
Working Paper details
- DOI
- 10.1920/wp.ifs.2019.0219
- Publisher
- The IFS
Suggested citation
O'Dea, C and Sturrock, D. (2019). Survival pessimism and the demand for annuities. London: The IFS. Available at: https://ifs.org.uk/publications/survival-pessimism-and-demand-annuities (accessed: 30 June 2024).
Grant
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