Expected Utility Theory (EUT) and Cumulative Prospect Theory (CPT) face problems explaining preferences of long‐term investors. Previous research motivates that the subjective utility of a long‐term investment also depends on interim value changes. Therefore, we propose an approach that we call Multi Cumulative Prospect Theory. It is based on CPT and considers annual changes in the contract values. As a first application, we can show that in contrast to EUT and CPT, this approach is able to explain the demand for guaranteed products with lock‐in features, which in this framework generate a higher subjective utility than products without or with simpler guarantees.

In economics it has traditionally been assumed that people make all their decisions like the so-called homo oeconomicusthat is, maximizing (expected) utility of total wealth.In recent years, economics increasingly recognized that people often exhibit behavioral patterns which are incompatible with the idea of the homo oeconomicus. The field of behavioral economics incorporates insights from the field of psychology to explain discrepancies between predictions of traditional economic theory and actual observed behavior. In this paper, we summarize a selection of well-established behavioral patterns observed in reality and discuss their relevance for the insurance industry when it comes to better understanding and predicting customer behavior. We also explain that people are not always risk-averse and give a brief overview over Prospect Theory (probably the most popular behavioral economics alternative to Expected Utility Theory), its shortcomings for predicting behavior over a long time horizon, and its extensions. In total, we point out that, since dealing with risks and insurance products requires complex decision making processes, a deep understanding of the impacts of behavioral factors is essential to better assess and explain costumer behavior.This article is based on the book "Moderne Verhaltensökonomie in der Versicherungswirtschaft-Denkanstöße für ein besseres Verständnis der Kunden", Springer (2018) by the same authors. The authors gratefully acknowledge the support of Joëlle Näger who translated the first draft.

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Life-cycle (or target-date) funds are funds, which typically decrease their risk exposure over time. They have been very successful in many countries, particularly in the segment of old age provision. However, Expected Utility Theory (EUT) cannot explain their popularity. Moreover, recent results of Graf (2016), imply that not only EUT but also its behavioral counterpart Cumulative Prospect Theory (CPT) is often not able to explain the popularity of these products, since for each life-cycle fund a corresponding balanced fund can be constructed, which is preferable from the investor's perspective in most circumstances. In a recent paper, Ruß and Schelling (2018), have argued that potential future changes in an investment's value already impact the decision of long-term investors at outset. Based on this, they have introduced Multi Cumulative Prospect Theory (MCPT), which is based on CPT and considers the subjective utility generated by annual value changes. This paper shows that for MCPT-investors, life-cycle funds are typically more attractive than their corresponding balanced funds since they reduce the potential losses toward the end of the investment horizon. Hence, our findings provide an explanation ---

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