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

Abstract

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.

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Replaced by

Giuseppe Marco Attanasi, Hippolyte D'Albis, and Emmanuel Thibault, “An Experimental Test of the Under-Annuitization Puzzle with Smooth Ambiguity and Charitable Giving”, Journal of Economic Behavior and Organization, vol. 180, December 2020, pp. 694–717.

Reference

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