UM07-04: Managing the Risk of Life
People’s income in old age depends importantly on complicated financial decisions, such as the annuitization of personal accounts. The standard economic framework of the Yaari model assumes that agents are risk neutral with respect to the length of life. This project, which builds on our current project (UM06-09), will advance our understanding of individuals’ financial decisions by introducing the important aspect of risk-aversion with respect to the length of life. We will apply the new framework to Social Security claiming behavior and annuity decisions and extend the analysis to portfolio choice and life insurance holdings.