Martin Weber Talk (CDS) - Time inconsistent preferences and the annuitization decision
Thursday, April 4, 2013
5:00pm – 7:00pm EST
Uris 3rd Floor - 333
3022 Broadway, New York, NY 10027
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Abstract As defined benefit pensions decline and life expectancy increases there is a growing need to take care for one’s income after retirement. Defined contribution plans have become more popular where people save a defined rate during the time they work which due to smart investing should give them a sum of money once they are about to retire. At that point, people have to choose whether they take that lump sum or to annuitize the amount. The fact that people tend to choose the lump sum even if economic reasons suggest that they should choose the annuity is called the annuity paradox. In a large online survey we find that people behave time inconsistent: Older people have a stronger tendency to choose the lump sum than younger people when they predict today what to choose when they are old. This effect is considerably stronger for participants that answer simple time preference questions inconsistently. Our findings suggest to think about precommitment devices for the annuitization decision already at the time when the defined benefit plan is started.
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Uris 3rd Floor - 333, 3022 Broadway, New York, NY 10027

Thursday, April 4, 2013, 5:00pm – 7:00pm

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Center for the Decision Sciences

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