Behavioral impediments to valuing annuities: Complexity and choice bracketing

Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, Olivia S. Mitchell, Anya Samek

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)533-546
Number of pages14
JournalReview of Economics and Statistics
Volume103
Issue number3
DOIs
StatePublished - Jul 12 2021
Externally publishedYes

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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