NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Cormac O'Dea

Department of Economics
Yale University
37 Hillhouse Avenue
New Haven, CT 06511
Tel: 203/432-7572

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NBER Program Affiliations: AG
NBER Affiliation: Faculty Research Fellow
Institutional Affiliation: Yale University

NBER Working Papers and Publications

August 2020Survival Pessimism and the Demand for Annuities
with David Sturrock: w27677
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 individuals 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.
 
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