Richard Thaler is a professor at the University of Chicago and he is a renown economist.
Best known for his work in the area of behavioral finance, Thaler focuses on how human psychology affects economic decision making.
Thaler recently wrote a piece on annuities which was published in the New York Times.
The Times article focused on the annuity puzzle. The term annuity puzzle is used to describe the lack of annuity adoption (purchases) relative to what economists would consider rational given the clear case that can be made for annuities in economic theory or "on paper."
Thaler touches on the following points when describing his perspective on the annuity puzzle:
- Financial Legacy - people are hesitant to purchase annuities because they want to pass money along to heirs.
- People make the mistake of viewing annuities as a gamble rather than insurance products (like home or auto insurance).
- Uncertainty surrounding longevity.
- Credit risk.
Thaler points out that annuities can be helpful in informing people about the right time to retire, and suggests that this retirement timing decision can be difficult in the absense of annuities.
Source: New York Times
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