Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



This paper documents consumers’ difficulty valuing life annuities. We show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them, a finding we show is not attributable to an endowment effect. We also find that buy values are negatively correlated with sell values and that the sell-buy valuation spread is negatively correlated with cognition; the spread is larger for those with less education, weaker numerical abilities, and lower levels of financial literacy. Our evidence contributes to the emerging literature on heterogeneity in financial decision-making abilities.


pension, annuity, retirement income, Social Security, financial literacy, cognition

JEL Code

D14, D91, G11, H55

Working Paper Number



Brown is a Trustee of TIAA and has served as a speaker, author, or consultant for a number of financial services organizations, some of which sell annuities and other retirement income products. Mitchell is a Trustee of the Wells Fargo Advantage Funds and has received research support from TIAA-CREF.

Copyright/Permission Statement

The opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the Federal Government, or any other institution with which the authors are affiliated. ©2015 Brown, Kapteyn, Luttmer, and Mitchell. All rights reserved.


The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA), funded as part of the Financial Literacy Consortium. The authors also acknowledge support provided by the Pension Research Council/Boettner Center at the Wharton School of the University of Pennsylvania, and the RAND Corporation. The authors thank Jonathan Li, Caroline Tassot, and Yong Yu for superb research assistance, and Tim Colvin, Tania Gutsche, Bas Weerman, and participants of the Netspar 2012 Paris conference and the NBER PE program meetings for their invaluable comments and assistance on the project.



Date Posted: 12 March 2019