Life Insurance and Annuity Demand under Hyperbolic Discounting
AbstractIn this paper, we analyse and construct a lifetime utility maximisation model with hyperbolic discounting. Within the model, a number of assumptions are made: complete markets, actuarially fair life insurance/annuity is available, and investors have time-dependent preferences. Time dependent preferences are in contrast to the usual case of constant preferences (exponential discounting). We find: (1) investors (realistically) demand more life insurance after retirement (in contrast to the standard model, which showed strong demand for life annuities), and annuities are rarely purchased; (2) optimal consumption paths exhibit a humped shape (which is usually only found in incomplete markets under the assumptions of the standard model). View Full-Text
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Tang, S.; Purcal, S.; Zhang, J. Life Insurance and Annuity Demand under Hyperbolic Discounting. Risks 2018, 6, 43.
Tang S, Purcal S, Zhang J. Life Insurance and Annuity Demand under Hyperbolic Discounting. Risks. 2018; 6(2):43.Chicago/Turabian Style
Tang, Siqi; Purcal, Sachi; Zhang, Jinhui. 2018. "Life Insurance and Annuity Demand under Hyperbolic Discounting." Risks 6, no. 2: 43.
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