Learning to Value Annuities: The Role of Information and Engagement

Hazel Bateman, Ralph Stevens, Jennifer Alonso Garcia and Eduard Ponds

Using an online experimental survey we investigate perception (in terms of understanding, riskiness and control) and valuation (elicited using iterative multiple price lists) of lifetime annuities relative to flexible drawdown products. We find that for those participants who are engaged with the experimental tasks, information provision and an online calculator can substantially reduce or eliminate behavioral drivers of the complex task of valuation of annuities. Providing balanced information and multiple opportunities to learn about the key features of the products, including impact of potential outcomes, narrows the gap between the willingness to pay and willingness to accept, and, offsets the effects of low financial capability, information framing and real-world institutional settings.