Working Paper: NBER ID: w19063
Authors: Jeffrey R. Brown; Jeffrey R. Kling; Sendhil Mullainathan; Marian V. Wrobel
Abstract: We provide evidence that individuals optimize imperfectly when making annuity decisions, and this result is not driven by loss aversion. Life annuities are more attractive when presented in a consumption frame than in an investment frame. Highlighting the purchase price in the consumption frame does not alter this result. The level of habitual spending has little interaction with preferences for annuities in the consumption frame. In an investment frame, consumers prefer annuities with principal guarantees; this result is similar for guarantee amounts below, at, and above the purchase price. We discuss implications for the retirement services industry and its regulators.
Keywords: Annuities; Framing; Retirement Income Security
JEL Codes: J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| framing of financial products (G20) | preferences for life annuities (G52) |
| consumption frame (E21) | preferences for life annuities (G52) |
| investment frame (G31) | preferences for life annuities (G52) |
| purchase price in consumption frame (D11) | preferences for life annuities (G52) |
| habitual consumption levels (D10) | preferences for life annuities (G52) |
| perceived risk (D81) | preferences for principal-protected annuities (G52) |