An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving

Hippolyte d'Albis (1, 2) , Giuseppe Attanasi (3) , Emmanuel Thibault (4)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques
3 GREDEG - Groupe de Recherche en Droit, Economie et Gestion
4 TSE-R - Toulouse School of Economics

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.

Domaines: Economies et finances

Hippolyte d'Albis, Giuseppe Attanasi, Emmanuel Thibault. An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving. Journal of Economic Behavior and Organization, 2020, 180, pp.694-717. ⟨10.1016/j.jebo.2019.09.019⟩. ⟨halshs-02398675⟩