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This paper studies psychological biases in take-up of annuities, using an incentivized
experiment with a probability-based sample (N = 3,038). Choosing an annuity
was payoff-maximizing in the experiment at all prices, but take-up was incomplete and
price elastic. Reformulating decisions as insurance against a “bad” outcome rather than
insurance against “longevity risk” did not increase take-up. Instead, we find substantial
failures of contingent reasoning: participants under-appreciated how annuitization mitigated
the need for less-efficient means of saving for retirement. Increasing the salience
of the interaction with savings decisions, or eliminating the need to think through this
interaction altogether, substantially increased annuity take-up.
