An investigation of time preferences, life expectancy, and annuity versus lump sum choices: Can smoking harm long-term saving decisions?

Abigail Hurwitz, Orly Sade*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


We exploit the fact that Israeli pension insurance policies do not take health conditions or smoking status into account in annuity pricing to investigate the potential effect of being a smoker on retirement payout choices. Contrary to the idea that smokers have higher discount rates (and thus should prefer the lump sum option), and even though the insurance pricing mechanism means that smokers would be offered the same annuity as nonsmokers (all else equal), we find that smokers do not prefer the lump sum option. We offer and test several potential explanations for our findings: illusions regarding life expectancy, self-control, and advantageous selection.

Original languageAmerican English
Pages (from-to)812-825
Number of pages14
JournalJournal of Economic Behavior and Organization
StatePublished - Dec 2020

Bibliographical note

Funding Information:
We have benefited from comments from Yaakov Amihud, Doron Avramov, Shlomo Benartzi, Cameron Ellis, Luigi Guiso, Eyal Lahav, Olivia S. Mitchell, François Pannequin, Oded Sarig, Kirill Shakhnov, Meir Statman, Federica Teppa, Steve Zeldes, the editor, two anonymous reviewers, and participants at the 2016 Financial Literacy Research and Practice conference at Ben-Gurion University; the 2016 IRMC, Jerusalem; the 2016 Incentives and Behavior Change Conference at Tel Aviv University; the 2016 ESA International Meeting at the Hebrew University; the 2016 Research in Behavioral Finance Conference (RBFC), Amsterdam; the 2016 CEAR Conference—Risk Literacy—Methods and Applications, Naples; the 10th Financial International Forum, Paris, 2017; the Second Israel Behavioral Finance Conference, Subjective Probability, Utility and Decision Making Conference (SPUDM) 2017, Technicon, August 2017; The Annual Netspar International Pension Workshop, Leiden, January 2018; the Seminar on Aging, Retirement and Pensions: Trends, Challenges and Policy, Ashkelon, March 2018; the CEAR/MRIC Behavioral Insurance Workshop 2018, Munich, December 2018; and seminar participants at the EIEF Rome; Hebrew University; IDC; Tel Aviv University; University of Vienna; The Wharton School; The College of Management Academic Studies, and MLA. This paper received financial support from the National Insurance Institute of Israel , the Kruger Center at the Hebrew University (Sade), and the Israeli Ministries of Finance and Science (Hurwitz). Sade thanks the Stern School of Business at New York University for support and hospitality. Hurwitz wishes to thank the Bogen fellowship for financial support of her research.

Publisher Copyright:
© 2019 The Authors


  • Financial decision
  • Longevity insurance
  • Smoking
  • Time preference


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