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An Experimental Study of the Effect of Market Performance on Annuitization and Equity Allocations

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  • Julie R. Agnew
  • Lisa R. Anderson
  • Lisa R. Szykman

Abstract

Although researchers have studied the annuity puzzle for years, it has only recently been analyzed from a behavioral finance standpoint. This paper adds to this new stream of literature by using experimental methods to investigate how market performance affects the decision to annuitize. Using a large-scale, controlled laboratory experiment, this paper finds evidence that excessive extrapolation may be influencing this decision. In addition, we find that past market performance influences subsequent portfolio allocation decisions. This paper serves as a useful complement to recent studies using administrative data. Our experimental approach allows us to more cleanly test the role of past market performance by carefully controlling for many factors that may confound the analysis of administrative data.

Suggested Citation

  • Julie R. Agnew & Lisa R. Anderson & Lisa R. Szykman, 2015. "An Experimental Study of the Effect of Market Performance on Annuitization and Equity Allocations," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 16(2), pages 120-129, April.
    • Handle: RePEc:taf:hbhfxx:v:16:y:2015:i:2:p:120-129
    DOI: 10.1080/15427560.2015.1034857
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    Cited by:

    1. d’Albis, Hippolyte & Attanasi, Giuseppe & Thibault, Emmanuel, 2020. "An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 694-717.
    2. Dorothee Franzen, 2020. "Qualität der betrieblichen Altersversorgung. Ergebnisse einer Expertenbefragung," Working Paper Forschungsförderung 169, Hans-Böckler-Stiftung, Düsseldorf.
    3. 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.
    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.
    5. Bachmann, Kremena & Lot, Andre & Xu, Xiaogeng & Hens, Thorsten, 2023. "Experimental Research on Retirement Decision-Making: Evidence from Replications," Journal of Banking & Finance, Elsevier, vol. 152(C).

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