An Experimental Analysis of Annuity Aversion the Role of Framing and Uncertainty

To understand the factors that influence people in their retirement decisions is of great importance. Due to an ongoing shift in western societies from public to private pension systems it becomes more and more the task of individual retirees to insure against longevity risk. While economic theory suggests that annuities should account for large parts of a retiree’s income, only few retirees include private annuities in their retirement portfolio at all. Empirical data on what drives this annuity aversion is limited, so we suggest using laboratory experiments to test possible explanations for the low rates of annuitization. We propose an experimental setup and provide a possible framework for future experimental research in the context of annuities. In a first application, we use this framework to test the influence of framing and lifetime uncertainty on annuity aversion.