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Evidence on individual preferences for longevity risk*

Published online by Cambridge University Press:  20 January 2015

G. DELPRAT ,
M.-L. LEROUX  and
P.-C. MICHAUD
G. DELPRAT
Affiliation:
Département des sciences économiques, ESG-UQAM
M.-L. LEROUX
Affiliation:
Département des sciences économiques, ESG-UQAM, CESifo, CORE, CIRANO and CIRPÉE, Montréal, QC, Canada (e-mail: leroux.marielouise@uqam.ca)
P.-C. MICHAUD
Affiliation:
Département des sciences économiques, ESG-UQAM, RAND Corporation, CIRPÉE and CIRANO
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Abstract

The standard model of intertemporal choice assumes risk neutrality towards the length of life: under additivity of lifetime utility and expected utility assumptions, agents are not sensitive to a mean preserving spread in the length of life. Using a survey fielded in the RAND American Life Panel, this paper provides empirical evidence on possible deviation from risk neutrality with respect to longevity in the US population. The questions we ask allow to find the distribution as well as to quantify the degree of risk aversion with respect to the length of life in the population. We find evidence that roughly 75% of respondents were not neutral with respect to longevity risk. Hence, there is a little empirical support for the joint use of the expected utility and additive lifetime utility assumptions in life-cycle models. Higher income households are more likely to be risk averse towards the length of life. We do not find evidence that the degree of risk aversion varies with age or education.

Keywords

D12D91I10J26Intertemporal choicerisk aversion towards the length of lifestated-preference
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 15 , Issue 2 , April 2016 , pp. 160 - 179
Copyright
Copyright © Cambridge University Press 2015 

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Footnotes

*

We acknowledge financial support from the RAND Roybal Center for Financial Decision Making, the Industrielle Alliance Research Chair on the Economics of Demographic Change and thank the RAND ALP survey team for fielding our questions. We also thank A. Bommier, A. Kapteyn, A. Hung, A. van Soest, P. Pestieau, G. Ponthiere as well as two anonymous referees for their comments and suggestions.

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