There's been a lot written recently about the "annuity anomaly." You know what that is. That's the idea stating the "rational man" will buy an annuity under certain, specific circumstances. That's what all those fancy academic experiments tell us. Trouble is, once you move those certain, specific circumstances off the blackboard and into the real world, people behave differently. 

Now, I know what you're thinking. You're thinking, "Oh, this is just another one of those articles about the well-documented problems with Modern Portfolio Theory." If that's what you're thinking, then this is what I say to you (in my best Nelson Muntz – he's the bully on the Simpsons – impersonation): "Ha ha!" 

Don't be fooled by my use of the term "rational man." Yes, that's an artifact from MPT. Yes, much of what has been learned from behavioral finance has shredded the concept behind that term. Ironically, though, it is that same area of study that proclaims investors should buy annuities. They don't actually use the term "rational man," but their conclusions, when compared to what happens in day-to-day living, has the imprimatur of the "rational man." It's like those behavioral professors are saying, "people behave irrationally, but in predictable ways." 

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Advisor Sales Strategies
Investment Instruments