The impact of risk aversion and ambiguity aversion on annuity and saving choices

Abstract We analyze the impact of risk aversion and ambiguity on competing demands for annuities bequeathable savings using a lifecycle recursive utility model. Our main finding is that have similar effects: an increase in either two reduces annuity demand enhances bond holdings. obtain this unequivocal result flexible intertemporal framework Hayashi Miao (2011) by assuming agent’s preferences are monotone with respect to first-order stochastic dominance. contribution then twofold. First, from decision-theoretic point view, we show monotonicity allows one clear-cut results about respective roles aversion. Second, insurance our decreases stands contrast what usually found other products. As such, it may help explain low annuitization level observed data.