Abstract

To determine the value of a pension, individuals need to consider their survival risk. In this paper, I first elicit survival probabilities for a broad set of target ages, using a representative panel of the 18-70 year-old Swiss population. I document a systematic survival belief bias, which is the stylized fact that individuals underestimate their survival probabilities (compared to actuarial life tables). Then, I show that incorrect information about longevity in general is a substantial component of this bias. Next, I implement an incentivized experiment that requires subjects to make risky pension choices, in which payoffs are not affected by participants’ own longevity. I find that longevity pessimism induces earlier and less risky choices about the timing of pension benefits, under annuity or lump-sum pension schemes. Finally, I show that happiness and satisfaction have an indirect effect on pension choices through the channel of longevity pessimism.

Andre Lot

Ph.D Research Scholar in Finance

I am a Ph.D candidate on the academic Finance job market in the 2022-23 cycle.