Options, Not Returns: Overcoming the Annuity Paradox

Kirstin Appelt, Columbia University, USA
Eric Johnson, Columbia University, USA
Although annuities insure people against outliving their money, few Americans purchase them. Two studies show that consumers prefer annuities that make less economic sense (annuities with a guaranteed minimum term or cash-back options), even if they give up returns. Individual differences in time and risk preferences also predict annuity preferences.
[ to cite ]:
Kirstin Appelt and Eric Johnson (2011) ,"Options, Not Returns: Overcoming the Annuity Paradox", in NA - Advances in Consumer Research Volume 39, eds. Rohini Ahluwalia, Tanya L. Chartrand, and Rebecca K. Ratner, Duluth, MN : Association for Consumer Research, Pages: 211-212.