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Adverse selection in tontines

Thorsten Moenig & Nan Zhu

The Geneva Risk and Insurance Review2024https://doi.org/10.1057/s10713-024-00104-warticle
AJG 2ABDC B
Weight
0.43

What the paper says

Abstract Several recent studies have cited the theoretical work of Valdez et al. [Insur: Math Econ 39(2):251–266, 2006] as evidence that there is less adverse selection in tontine-style products than in conventional life annuities. We argue that the modeling work and results of Valdez et al. [Insur: Math Econ 39(2):251–266, 2006] do not unconditionally support such a claim. Conducting our own analyses structured in a similar way but focusing on the relative instead of absolute change in annuity vs. tontine investments, we find that an individual with private information about their own survival prospect can potentially adversely select against tontines at the same, or even higher levels than against annuities. Our results suggest that the investor’s relative risk aversion is the driving factor of the relative susceptibility of the two products to adverse selection.

2 citations

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https://doi.org/https://doi.org/10.1057/s10713-024-00104-w

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@article{thorsten2024,
  title        = {{Adverse selection in tontines}},
  author       = {Thorsten Moenig & Nan Zhu},
  journal      = {The Geneva Risk and Insurance Review},
  year         = {2024},
  doi          = {https://doi.org/https://doi.org/10.1057/s10713-024-00104-w},
}

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Evidence weight

0.43

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.31 × 0.4 = 0.12
M · momentum0.55 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.