Rare events and annuity market participation
Lopes, P.
& Michaelides, A.
(2007).
Rare events and annuity market participation.
Finance Research Letters,
4(2), 82-91.
https://doi.org/10.1016/j.frl.2006.12.001
& Michaelides, A.
(2007).
Rare events and annuity market participation.
Finance Research Letters,
4(2), 82-91.
https://doi.org/10.1016/j.frl.2006.12.001
We investigate whether a rare event (like the default of the annuity provider) can explain the annuity market participation puzzle. High risk aversion is needed to change behavior in the presence of such a disastrous shock but higher risk aversion also makes annuities more valuable. Therefore, these rare events are unlikely candidates to explain the low take-up of voluntary annuities: the conclusion is robust to disentangling risk aversion from intertemporal substitution and to allowing portfolio investment in a stock market index.