Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect

Payne, John W.; Sagara, Namika; Shu, Suzanne B.; Appelt, Kirstin C.; Johnson, Eric J.

doi:10.1007/s11166-012-9158-0

Cited by 63 publications

(41 citation statements)

References 28 publications

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“…Participants in the annuity (IRA) condition next indicated their likelihood of putting their retirement savings into an annuity (IRA), measured using a sliding scale with endpoints, 0% = “Definitely No” and 100% = “Definitely Yes” (Payne, Sagara, Shu, Appelt, & Johnson, 2013). We predicted that participants would be more likely to list thoughts of death, and less likely to choose the financial product, in the annuity condition as compared to the IRA condition.…”

Section: Methodsmentioning

confidence: 99%

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Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions

Salisbury

Nenkov

2015

J Consum Psychol

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We propose mortality salience -increased accessibility of death-related thoughts -as one previously unexplored explanation for the annuity puzzle, the low rate at which retirees buy annuities even though economists recommend annuities as an optimal decision. Across four studies we show that mortality salience decreases how likely individuals are to put savings into an annuity. By forcing consumers to consider their own death, the annuity decision makes mortality salient, motivating them to avoid the annuity option as a proximal defense against the death-related thoughts triggered by considering an annuity. Moreover, we demonstrate the robustness of the mortality salience effect through measurement and manipulation of the underlying process, and we estimate an overall mean effect size using meta-analysis. With this research, psychological theory can inform economic theory by helping to explain the annuity puzzle phenomenon that has challenged economists for decades. This research also has important implications for consumer welfare by offering insights into annuity choice and helping to inform the increasingly complex financial decisions facing individuals as they navigate the retirement savings decumulation process.

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Section: Methodsmentioning

confidence: 99%

“…All items were measured using 7‐point scales. We also measured self‐reported subjective life expectancy (SLE) with a set of four questions following Payne et al (2013). Finally, we measured participants' gender, age, and income.…”

Section: Methodsmentioning

confidence: 99%

Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions

Salisbury

Nenkov

2015

J Consum Psychol

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“…The survey's main questions on mortality beliefs ask about the chances of survival, rather than the chances of dying, because the latter could inflate beliefs about the likelihood of death (Payne et al. ()).…”

Section: Mortality Beliefs Over the Life Cyclementioning

confidence: 99%

YOLO: Mortality Beliefs and Household Finance Puzzles

Heimer¹,

Myrseth²,

Schoenle

2019

The Journal of Finance

163

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We study the effect of subjective mortality beliefs on life‐cycle behavior. With new survey evidence, we document that survival is underestimated (overestimated) by the young (old). We calibrate a canonical life‐cycle model to elicited beliefs. Relative to calibrations using actuarial probabilities, the young undersave by 26%, and retirees draw down their assets 27% slower, while the model's fit to consumption data improves by 88%. Cross‐sectional regressions support the model's predictions: Distorted mortality beliefs correlate with savings behavior while controlling for risk preferences, cognitive, and socioeconomic factors. Overweighting the likelihood of rare events contributes to mortality belief distortions.

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“…After completing all 20 choice tasks in their assigned condition, participants filled out a number of additional demographic and psychographic measures. Participants were first asked how long they expected to rely on their retirement funds by having them indicate the probability that they would live to ages 65, 75, 85, and 95 (Payne et al, ) . We next collected demographic information including gender, race, marital status, number of children, household income, and retirement assets.…”

Section: Our Studies Of Consumer Preferences For Annuitiesmentioning

confidence: 99%

The pivotal role of fairness: Which consumers like annuities?

2018

Self Cite

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Decumulation of wealth in retirement is a difficult task, requiring tradeoffs between longevity risks and immediate consumption needs. Economists have long argued that life annuities can be a valuable part of decumulation and that most retirees should annuitize, and yet actual market demand is quite low–the so‐called “annuity puzzle.” We analyze data from two studies to understand how measurable individual differences predict interest in annuities. In our data, a relatively high percentage of respondents dislike all annuities; demographic measures are not predictive of which individuals never choose annuities, and individual factors (such as beneficiaries) favored by economic models have small or even opposite effects. We find that the strongest individual differences predictive of liking of annuities are the respondent's perception of product fairness. We discuss implications of our findings for financial planners hoping to help customers with their decumulation challenges.

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Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect

Cited by 63 publications

References 28 publications

Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions

Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions

YOLO: Mortality Beliefs and Household Finance Puzzles

The pivotal role of fairness: Which consumers like annuities?

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