Too Risk Averse to Purchase Insurance? A Theoretical Glance at the Annuity Puzzle

Bommier, Antoine; Grand, François Le

doi:10.2139/ssrn.2191600

Cited by 16 publications

(27 citation statements)

References 48 publications

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“…Yet, they find a negative relation between risk aversion and wealth. 7 We do not find any correlation between age and risk aversion, contrary to Barksy et al (1997), Arrondel et al (2005) and Kapteyn and Teppa (2011). This may be due to the fact that we restricted the age of our sample to be comprised between 40 and 60.…”

Section: Degree Of Deviation From Risk Neutralitycontrasting

confidence: 75%

Evidence on Individual Preferences for Longevity Risk

2013

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Abstract:The standard model of intertemporal choice assumes risk neutrality toward the length of life: due to additivity, agents are not sensitive to a mean preserving spread in the length of life. Using a survey fielded in the RAND American Life Panel (ALP), this paper provides empirical evidence on possible deviation from risk neutrality with respect to longevity in the U.S. population. The questions we ask allow to find the distribution as well as to quantify the degree of risk aversion with respect to the length of life in the population. We find evidence that roughly 75% of respondents were not neutral with respect to longevity risk. Higher income households are more likely to be risk averse. We do not find evidence that the degree of risk aversion varies with age or education.

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Section: Degree Of Deviation From Risk Neutralitycontrasting

confidence: 75%

Evidence on Individual Preferences for Longevity Risk

2013

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“…Savings: the link between intertemporal choices and savings has been intensively investigated so far and the existing studies confirm the theoretical claims that people who discount future less tend to save more (Loewenstein & Prelec, 1992), (Bommier & Le Grand, 2014). We have also found this relationship to be significant in three analyzed countries.…”

Section: Number Of Childrensupporting

confidence: 83%

The Importance of Behavioural Factors for Pension Savings Decisions – Cross-Country Evidence

Kaliciak¹,

Kurach²,

Merouani³

2019

Acta Oeconomica

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In this study, we challenge the problem of inadequate voluntary pension savings by exploring the micro-dataset of the Luxembourg Wealth Study (LWS) for three countries: Italy, the United Kingdom and the United States. The existing empirical literature usually focuses on the role of socio-demographic factors to understand this phenomenon, and theoretical studies additionally highlight the role of behavioural factors. However, empirical studies in this field are extremely scarce. The use of the LWS data enables us to fill this research gap. Separately for each country, we verify the role of individuals' risk attitudes and intertemporal choices in the demand for voluntary pension savings. To make the results more robust, we add a set of socio-demographic control variables to our regressions. Our findings clearly reveal that being more risk averse and being less forward looking negatively affect people's propensity to save for retirement. Furthermore, we confirm that age, gender and education are significant predictors of pension demand in each of the analysed countries. We argue that these conclusions have practical meaning to improve regulatory frameworks.

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“…The paper by Bommier and Le Grand (2014) deals with the annuity puzzle: why do many people seemingly under-invest in annuities? This puzzle arises as a contrast to the classical theoretical work of Yaari (1965).…”

Section: Contribution Of the Special Issuementioning

confidence: 99%

“…The model of Bommier and Le Grand (2014) captures this idea, but in a different way. The authors consider both bequest motives and a concave lifetime utility function, in the spirit of Kihlstrom and Mirman (1974).…”

Section: Contribution Of the Special Issuementioning

confidence: 99%

“…Risk aversion for intertemporal (lifetime) risk and risk aversion for intratemporal risks are disentangled. Consequently, Bommier and Le Grand (2014) analyze the pure impact of an increase in intertemporal risk aversion on annuitization. As people in their model perceive a long life to be a good outcome and an early death to be a bad outcome, this setup captures the intuition that annuities might be viewed as risk increasing.…”

Section: Contribution Of the Special Issuementioning

confidence: 99%

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Behavioral insurance: Theory and experiments

2014

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"Risk and insurance" provides an illustrative set of decisions made in the presence of uncertainty. As behavioral models become more integrated into economics and finance, many of their effects are illustrated quite well within insurance markets. Especially noteworthy are the complementary roles of theory and experiments. This article reviews the interactive role of experiments and theory in analyzing insurance demand from a behavioral perspective. We pay special attention to several models of underinvestment in insurance or in other risk-mitigation markets.

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Too Risk Averse to Purchase Insurance? A Theoretical Glance at the Annuity Puzzle

Cited by 16 publications

References 48 publications

Evidence on Individual Preferences for Longevity Risk

Evidence on Individual Preferences for Longevity Risk

The Importance of Behavioural Factors for Pension Savings Decisions – Cross-Country Evidence

Behavioral insurance: Theory and experiments

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