Optimal retirement products under subjective mortality beliefs

Many empirical studies confirm that policyholder’s subjective mortality beliefs deviate from the information given by publicly available tables. In this study, we look at effect of on perceived attractiveness retirement products, focusing two extreme conventional annuities (where insurance company takes longevity risk) and tontines a pool policyholders shares risk). If risk loadings charges are neglected, standard expected utility framework, without beliefs, leads to conclusion always preferred (Yaari (1965), Milevsky Salisbury (2015)). same setting, show result is easily reversed if an individual perceives her peer’s life expectancies be lower than ones used company. We prove that, assuming such there exists critical tontine size which over annuity. This suggests might as much more attractive suggested theory beliefs.