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The annuity or the lump sum?

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A fascinating question in behavioral economics is how people value lump sums vs. annuities (payments that are spread out over time).

Here are some readings on the topic:

If you take a light gloss over the literature, one would think that people are overly attracted to the lump sum, that is, they discount the future too much. One recent paper, however, finds that the appeal of the annuity has much to do with the amount. Small annuity payments are quite unattractive, but large annuity payments become surprisingly attractive. The appeal of lump sums changes less as the amount varies:


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