Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle
Last registered on April 11, 2017

Pre-Trial

Trial Information
General Information
Title
Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle
RCT ID
AEARCTR-0002131
Initial registration date
April 10, 2017
Last updated
April 11, 2017 11:20 AM EDT
Location(s)
Primary Investigator
Affiliation
NBER
Other Primary Investigator(s)
PI Affiliation
University of Illinois at Urbana-Champaign
PI Affiliation
Massachusetts Health Policy Commission
PI Affiliation
Harvard University
Additional Trial Information
Status
Completed
Start date
2007-12-01
End date
2008-01-01
Secondary IDs
Abstract
Rational models of risk-averse consumers have difficulty explaining limited annuity demand. We posit that consumers evaluate annuity products using a narrow "investment frame" that focuses on risk and return, rather than a "consumption frame" that considers the consequences for lifelong consumption. Under an investment frame, annuities are quite unattractive, exhibiting high risk without high returns. Survey evidence supports this hypothesis: whereas 72 percent of respondents prefer a life annuity over a savings account when the choice is framed in terms of consumption, only 21 percent of respondents prefer it when the choice is framed in terms of investment features.
External Link(s)
Registration Citation
Citation
Brown, Jeffrey et al. 2017. "Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle." AEA RCT Registry. April 11. https://www.socialscienceregistry.org/trials/2131/history/16315
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Experimental Details
Interventions
Intervention(s)
The researchers conducted a four-arm internet survey. The sample frame was a panel of respondents over the age of 50 that had agreed to participate in surveys for a small incentive. The survey consisted of seven forced-choice questions that described financial products worth $100,000 purchased by two fictitious people for retirement income and asked, “Who has made the better choice”? Five products were described, all actuarially equivalent. The first product was a life annuity paying $650 each month until death, after which any remaining principal was forfeit. The second was a traditional savings account earning 4% APY. The third was a consol bond paying $400 per month. The fourth was a thirty-five year annuity paying $500 per month. The fifth and last was a twenty-five year annuity paying $650 per month. The fictitious individuals were 50 years old, had already provided an inheritance for their children, and would be receiving $1000 per month in Social Security benefits.
Intervention Start Date
2007-12-01
Intervention End Date
2008-01-01
Primary Outcomes
Primary Outcomes (end points)
the percentage of individuals who preferred a life annuity to actuarially equivalent alternative options
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
In the first survey arm, the decisions were presented from a consumption frame, i.e. how much money each person could spend per month after purchasing that product. The remaining principal or payments could be donated to charity after death, except in the case of the life annuity. In the second arm, the decisions were also framed in terms of consumption, but the remainder after death could be left to descendants instead. In the third survey arm, the decisions were presented from an investment frame, i.e. how much money each product earns per month. After death, the remainder could be donated to charity, except in the case of the life annuity. In the fourth survey arm, the decisions were also presented from an investment frame, but the remainder after death could be left to descendants.

1342 individuals took part in the survey, with roughly 335 individuals in each survey arm. In all arms, the options were referred to in general terms of amounts and durations. Specific terms such as annuity, savings account, or bond were not used. In each arm, the life annuity was compared separately to the other products. Other comparisons not featuring the life annuity were included to avoid spurious effects. The order of the options was varied as well.
Experimental Design Details
Randomization Method
randomization performed in office on computer
Randomization Unit
Individual
Was the treatment clustered?
No
Experiment Characteristics
Sample size: planned number of clusters
1342 individuals
Sample size: planned number of observations
1342 individuals
Sample size (or number of clusters) by treatment arms
about 335 individuals per arm
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
Harvard University Committee on the use of Human Subjects in Research
IRB Approval Date
Details not available
IRB Approval Number
F16661-102
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
Yes
Intervention Completion Date
January 01, 2008, 12:00 AM +00:00
Is data collection complete?
Yes
Data Collection Completion Date
January 01, 2008, 12:00 AM +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
1342 individuals
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
1342 individuals
Final Sample Size (or Number of Clusters) by Treatment Arms
about 335 individuals per arm
Data Publication
Data Publication
Is public data available?
No
Program Files
Program Files
Reports and Papers
Preliminary Reports
Relevant Papers
Abstract
Rational models of risk-averse consumers have difficulty explaining limited annuity demand. We posit that consumers evaluate annuity products using a narrow "investment frame" that focuses on risk and return, rather than a "consumption frame" that considers the consequences for lifelong consumption. Under an investment frame, annuities are quite unattractive, exhibiting high risk without high returns. Survey evidence supports this hypothesis: whereas 72 percent of respondents prefer a life annuity over a savings account when the choice is framed in terms of consumption, only 21 percent of respondents prefer it when the choice is framed in terms of investment features.
Citation
Brown, Jeffrey R., Jeffrey R. Kling, Sendhil Mullainathan, and Marian V. Wrobel. 2008. "Why Don't People Insure Late-Life Consumption? A Framing Explanation of the Under Annuitization Puzzle." American Economic Review: Papers Proceedings 98(2): 304-9.