Scandinavian Working Papers in Economics
Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy
No 2024:4: Health shocks, risk preferences and annuity choices
Johannes Hagen (), Michal Hodor () and Abigail Hurwitz ()
Additional contact information
Johannes Hagen: Jönköping University
Michal Hodor: Tel Aviv University
Abigail Hurwitz: 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.
Keywords: Annuity puzzle; Adverse selection; Advantageous selection; Health shocks
Language: English
40 pages, February 22, 2024
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