City Research Online

Abstract

People have been shown empirically to have subjective survival probabilities, which deviate from the objective survival probabilities derived from mortality data. Subjective survival beliefs affect many decision-making processes, including annuity purchases. We build an agent-based model to test if simple behaviour rules can re-create patterns provided by the Survey of Consumer Finance data. By building the model, we test whether agents are updating survival beliefs based on observations and if they are using simple behaviour rules. We further develop the agent-based model to simulate the annuity market with the optimism index that we introduce. We use a newly developed optimism index to formulate subjective survival probabilities and use the subjective survival probability to solve a life-cycle model of savings and consumption. Our life-cycle model finds contrasting results to a published model. Our model suggests that subjective mortality may not be a cause of the anomalies in savings and consumption behaviour, including annuity purchases. Finally, we build an agent-based model that creates a realistic network based on node characteristics, in particular agent’s age. We find that the realistic network is constructed even without the desired degree of nodes. The last model simulates an annuity market after pension reform in 2015. The simulation result suggests that individuals’ preference for an annuity is low as 5%.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Actuarial Science & Insurance Bayes Business School > Bayes Business School Doctoral Theses Doctoral Theses

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