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An empirical test of competing hypotheses for the annuity puzzle

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  • Goedde-Menke, Michael
  • Lehmensiek-Starke, Moritz
  • Nolte, Sven

Abstract

This paper conducts the first empirical test of numerous rational and behavioral hypotheses for the low annuity demand observed in private markets. We designed a questionnaire based on findings from economics and psychology, enabling us to simultaneously investigate a broad range of motives that presumably constitute the reluctance to buy annuities. To address the interdependence of financial product choice and domain-specific investor sophistication, we construct and employ a novel, comprehensive measure of “annuity literacy”. The results from a representative survey among German consumers reveal that both established rational and so far untested behavioral motives are significant barriers to annuitize wealth. Furthermore, the overall level of annuity literacy is rather low, with most respondents lacking knowledge of an annuity’s core mechanics. These findings disclose promising directions for annuity suppliers, policy makers, and researchers towards resolving the annuity puzzle.

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  • Goedde-Menke, Michael & Lehmensiek-Starke, Moritz & Nolte, Sven, 2014. "An empirical test of competing hypotheses for the annuity puzzle," Journal of Economic Psychology, Elsevier, vol. 43(C), pages 75-91.
    • Handle: RePEc:eee:joepsy:v:43:y:2014:i:c:p:75-91
    DOI: 10.1016/j.joep.2014.04.001
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    2. Maria Alexandrova & Nadine Gatzert, 2019. "What Do We Know About Annuitization Decisions?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(1), pages 57-100, March.
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    4. Mohamad Hassan Abou Daya & Carole Bernard, 2022. "What matters in the annuitization decision?," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-12, December.
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    7. Dragos, Simona Laura & Dragos, Cristian Mihai & Muresan, Gabriela Mihaela, 2020. "From intention to decision in purchasing life insurance and private pensions: different effects of knowledge and behavioural factors," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Retirement planning; Old-age poverty; Consumer attitudes; Trust in financial institutions; Knowledge; Information behavior;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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