Multiple reference points and the demand for principal-protected life annuities : an experimental analysis

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<subfield code="a">Knoller, Christian</subfield>
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<subfield code="a">Multiple reference points and the demand for principal-protected life annuities</subfield>
<subfield code="b">: an experimental analysis</subfield>
<subfield code="c">Christian Knoller</subfield>
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<subfield code="a">We conducted an experiment in which participants were confronted with an experimental annuitization decision. Previous research has argued in favor of the hypothesis that a combination of mental accounting and prospect theory can explain why annuities containing a capital guarantee are preferred to standard annuities. However, from this perspective people wouldnot annuitize their assets at all, but rather invest themoney in a risk-free alternative. Recent research has also suggested a cushion effect. When all possible outcomes of two options are above a certain goal, this goal serves as a cushion in case of unfavorable outcomes. Hence, individuals might have a higher propensity to exhibit risk-seeking behavior. We find that individuals were indeed more willing to choose the annuity option if it contained a capital guarantee and that individuals using this guarantee as a cushion were even more willing to choose the annuity. Thus, the cushion effect can partially explain the high demand for guarantee features in annuity contracts. </subfield>
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<subfield code="t">The Journal of risk and insurance</subfield>
<subfield code="d">Nueva York : The American Risk and Insurance Association, 1964-</subfield>
<subfield code="x">0022-4367</subfield>
<subfield code="g">01/03/2016 Volumen 82 Número 5 - marzo 2016 , p. 163-179</subfield>