Journal of Economic Psychology2014-08-18 8:52 PM

An empirical test of competing hypotheses for the annuity puzzle


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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Journal of Economic Psychology

Research in Economic Psychology and Behavioral Economics.The Journal aims to present research that will improve understanding of behavioral, especially socio- psychological, aspects of economic phenomena and processes.

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