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Health shocks, risk preferences and annuity choices

Author

Listed:
  • Hagen, Johannes

    (Jönköping University)

  • Hodor, Michal

    (Tel Aviv University)

  • Hurwitz, Abigail

    (The Hebrew University of Jerusalem)

Abstract

This study examines the simultaneous impact of risk type and risk preferences on annuity demand. Through a quasi-experimental design that leverages individuals’ reactions to their first malignant cancer diagnosis around retirement, we show that a 30% reduction in the present value of life annuities from decreased life expectancy results in just a 5% decline in annuitization rates. We further demonstrate that risk-averse individuals drive this effect, whereas the risk-tolerant remain unchanged in their demand. Our findings suggest that risk-averse individuals view life annuities as a means to ensure against longevity risk.

Suggested Citation

  • Hagen, Johannes & Hodor, Michal & Hurwitz, Abigail, 2024. "Health shocks, risk preferences and annuity choices," Working Paper Series 2024:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2024_004
    as

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    More about this item

    Keywords

    Annuity puzzle; Adverse selection; Advantageous selection; Health shocks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G50 - Financial Economics - - Household Finance - - - General
    • G52 - Financial Economics - - Household Finance - - - Insurance

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