Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

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

doi:10.1162/rest_a_00892

Cited by 44 publications

(27 citation statements)

References 59 publications

(54 reference statements)

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“…5 Our study is also related to a strand of literature that seeks to reduce complexity in other types of financial choices using decision aids. For example, (Brown et al, 2019) and (Samek et al, 2019) find that consequence information helps people value annuities. (Samek et al, 2016) shows that displaying interactive tables improves decisions in multi-attribute choice tasks.…”

Section: Introductionmentioning

confidence: 99%

Impact of Consequence Information on Insurance Choice

Samek¹,

Sydnor²

2020

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Insurance choices are often hard to rationalize by standard theory and frequently appear suboptimal. A key reason may be that people are unable to map the cost-sharing features of plans to their distribution of financial consequences. We develop and experimentally test a decision aid that provides this mapping to simplify comparisons of plan options. In two experiments mirroring typical health insurance decisions, we find that when people choose plans using standard feature-based information, they violate dominance at high rates. Our distribution-based decision aid substantially reduces dominance violations, and also changes choice patterns in situations where there is no dominant option. Choice patterns under feature-based menus can be most easily rationalized by models of heuristic choices, such as minimizing premium or deductible. With the decision aid, though, significantly more people have choice patterns that are better explained by expected utility theory. We compare our distribution-based approach to an alternative of providing estimates of the expected value of costs, which is the most common decision-support available in most insurance markets. Providing expected values affects choices in a similar direction as our consequence-based approach, but in a more muted fashion, and is only about half as effective at reducing dominance violations.

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Section: Introductionmentioning

confidence: 99%

Impact of Consequence Information on Insurance Choice

Samek¹,

Sydnor²

2020

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“…This figure reports only on consistent participants (as defined above); results for all participants are similar.18 Brown et al (2019) similarly reported that more financially literate individuals were more likely to correctly value life annuities.…”

mentioning

confidence: 69%

“…Our approach builds on Brown et al (2017Brown et al ( , 2019 and Samek, Kapteyn, and Gray (2019), who displayed vignettes to survey participants by randomly assigning participants to different messages about the consequences of longevity risk. 4 That research suggested that the consequence messages did enhance peoples' understanding of annuities and Social Security claiming.…”

Section: Why Use Vignettes?mentioning

confidence: 99%

Testing Methods to Enhance Longevity Awareness

2020

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Many people have only a vague notion of the concept of life expectancy and the longevity risk they face at older ages, which in turn implies that they are likely to undersave for retirement. This paper employs an online experiment to investigate alternative ways to describe both life expectancy and longevity risk, with the goal of assessing whether these can raise peoples' awareness of possible retirement shortfalls. We also evaluate whether providing this information promotes interest in saving activity and demand for longevity insurance products. We find that providing longevity risk information impacts respondents' subjective survival probabilities, while simply describing average life expectancy does not. Yet providing life expectancy or longevity information significantly affects financial decisions, mostly regarding annuitization. Interestingly, we also find that merely prompting people to think about financial decisions changes their perceptions regarding subjective survival probabilities.

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“…6 Delis et al (2021) use the same survey. 7 A growing number of studies use randomized survey-experiment designs in economics and finance (e.g., Alesina et al, 2018;Brown et al, 2019;Karadja et al, 2017;Kuziemko et al, 2015). 8 Besides questions on attitudes toward bank advisors, the 24 questions address self-confidence in financial capability (five questions besides question 3), financial literacy in the form of a quiz (six questions), the use of heuristics (two questions), emotions linked to finance (three questions), and budget behavioral intentions (three questions).…”

Section: The Survey Experimentsmentioning

confidence: 99%

Financial vulnerability and seeking expert advice: Evidence from a survey experiment

2021

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The role of a bank advisor is especially important for guiding and counseling financially distressed individuals. Using a randomized controlled survey experiment conducted on a representative sample of French individuals and priming the financial vulnerability of half the respondents, we examine attitudes toward bank advisors. We find that priming deters low-income individuals from showing an extremely negative attitude toward seeking banking advice (positive effect); it also deters them from showing an extremely positive attitude (negative effect). We also find that acute financial distress partially drives the positive effect, and a lack of financial literacy partially drives the negative effect.

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Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

Cited by 44 publications

References 59 publications

Impact of Consequence Information on Insurance Choice

Impact of Consequence Information on Insurance Choice

Testing Methods to Enhance Longevity Awareness

Financial vulnerability and seeking expert advice: Evidence from a survey experiment

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