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Failures of Contingent Reasoning in Annuitization Decisions / Erzo F.P. Luttmer, Priscila de Oliveira, Dmitry Taubinsky.
- Format:
- Book
- Author/Creator:
- Luttmer, Erzo F.P.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w33654.
- NBER working paper series no. w33654
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2025.
- Summary:
- This paper studies psychological biases in take-up of annuities, using an incentivized experiment with a probability-based sample (N = 3,038). Choosing an annuity was payoff-maximizing in the experiment at all prices, but take-up was incomplete and price elastic. Reformulating decisions as insurance against a "bad" outcome rather than insurance against "longevity risk" did not increase take-up. Instead, we find substantial failures of contingent reasoning: participants under-appreciated how annuitization mitigated the need for less-efficient means of saving for retirement. Increasing the salience of the interaction with savings decisions, or eliminating the need to think through this interaction altogether, substantially increased annuity take-up.
- Notes:
- April 2025.
- Print version record
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