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The Review of Economics and Statistics Vol. 103 No. 3 2021

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

Jeffrey R. Brown1; Arie Kapteyn2; Erzo F. P. Luttmer3; Olivia S. Mitchell4; Anya Samek5

1 University of Illinois and NBER · 2 University of Southern California and NBER · 3 Dartmouth College and NBER · 4 University of Pennsylvania and NBER · 5 University of California San Diego and NBER

Abstract

This paper examines two behavioral factors that diminish people's ability to value a lifetime income stream or annuity, drawing on a randomized experiment with about 4,000 adults in a U.S. nationally representative sample. We find that increasing the complexity of the annuity choice reduces respondents' ability to value the annuity, measured by the difference between the sell and buy values they assign to the annuity. When we limit narrow choice bracketing by inducing people to think first about how quickly or slowly to spend down assets in retirement, their ability to value an annuity increases.

DOI
10.1162/rest_a_00892
Volume
103
Issue
3
Pages
533-546
Language
en
Sources
openalex crossref

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