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An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving

Author

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  • Hippolyte d'Albis

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Giuseppe Attanasi

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Emmanuel Thibault

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

In a life-cycle model with a bequest motive, we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities. We implement a theory-driven laboratory experiment. First, a subject's ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational. Then, in a two-period annuity-bequest decision problem, the subject's bequest in the second period is presented as a donation to a previously chosen charity, contingent to the subject being active after the first period. In line with the theoretical predictions, we find that ambiguity-averse (resp., loving) subjects invest less (resp., more) in annuities than ambiguity-neutral ones. Furthermore, subjects' contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm-glow altruism.

Suggested Citation

  • Hippolyte d'Albis & Giuseppe Attanasi & Emmanuel Thibault, 2020. "An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving," PSE-Ecole d'économie de Paris (Postprint) halshs-02398675, HAL.
    • Handle: RePEc:hal:pseptp:halshs-02398675
    DOI: 10.1016/j.jebo.2019.09.019
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    2. Florian Baumann & Tim Friehe & Pascal Langenbach, 2020. "Fines versus Damages: Experimental Evidence on Care Investments," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_08, Max Planck Institute for Research on Collective Goods, revised Mar 2024.
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    5. Milos Borozan & Loreta Cannito & Barbara Luppi, 2022. "A tale of two ambiguities: A conceptual overview of findings from economics and psychology," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 6(S1), pages 11-21, July.

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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