Behavioral economics and the longevity problem

Insurance companies can use payout annuities as a way to fill in the gap left by the falling use of defined benefit plans, yet market penetration for these products is relatively low. The classic behavioral economics research of Daniel Kahneman and Amos Tversky in prospect theory may provide insight into why annuities are not as popular as life insurance. In this paper, we postulate how their work might apply to life insurance and annuities, and suggest a new product concept that could be the breakthrough product insurers need to enter the longevity insurance market in a new and successful way.