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

8 Scopus citations

Abstract

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
Volume180
DOIs
StatePublished - Dec 2020

Bibliographical note

Publisher Copyright:
© 2019 The Authors

Keywords

  • Financial decision
  • Longevity insurance
  • Smoking
  • Time preference

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