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An Experimental Test of the Under-Annuitization Puzzle with Smooth Ambiguity and Charitable Giving

Attanasi, Giuseppe Marco, D'Albis, Hippolyte and Thibault, Emmanuel (2018) An Experimental Test of the Under-Annuitization Puzzle with Smooth Ambiguity and Charitable Giving. TSE Working Paper, n. 18-932, Toulouse

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In a life-cycle model with a bequest motive, we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities. We implement a theory-driven laboratory experiment. First, a subject's ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational. Then, in a two-period annuity-bequest decision problem, the subject's bequest in the second period is presented as a donation to a previously chosen charity, contingent to the subject being active after the first period. In line with the theoretical predictions, we find that ambiguity-averse (resp., loving) subjects invest less (resp., more) in annuities than ambiguity-neutral ones. Furthermore, subjects'contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm-glow altruism.

Item Type: Monograph (Working Paper)
Language: English
Date: July 2018
Place of Publication: Toulouse
Uncontrolled Keywords: Self-insurance, annuity, uncertain survival probabilities, smooth ambiguity aversion, charity, experiment
JEL Classification: C91 - Laboratory, Individual Behavior
D81 - Criteria for Decision-Making under Risk and Uncertainty
G22 - Insurance; Insurance Companies
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 05 Jul 2018 08:14
Last Modified: 11 Oct 2019 09:17
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