Life insurance and annuity demand under hyperbolic discounting

Artikel

In 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).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 6 ; Year: 2018 ; Issue: 2 ; Pages: 1-10 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: hyperbolic discounting ; dynamic programming ; consumption ; portfolio rules ; life insurance ; life annuity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tang, Siqi ; Purcal, Sachi ; Zhang, Jinhui
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2018

Further information

• DOI: doi:10.3390/risks6020043
• Handle: http://hdl.handle.net/10419/195835
• Last update: 10.03.2025, 11:42 AM CET