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Susan St John : A proposal for lifetime annuities with long term care insurance

Susan describes a proposal for moderate income 65+ retirement that includes an incremental lifetime annuity of around $10k pa (over and above NZ super) combined with an insurance policy for long term care (which costs in the region of $50k pa). Her argument advocates a combination of private contribution form wealth – i.e. decumulation – on the order of $150k-$200k and public sector guarantees (risk bearing) onto deal with a combination of problems that plague purely private solutions: adverse selection , gender neutrality, and less than adequate , indeed “minimalist” , taxpayer funded long term care issues.

Please be tolerant of the mixed audio quality. The slides are great and most but not all of the audio – it’s the best we could do with a camcorder in this room!

Table of contents : RPRC Forum Nov 21 2014: Decumulating Retirement Savings: making the options work 

  1. “Do we agree what  the problem is?” – Susan St John’s introduction
  2. Opening comments from NZ’s Retirement Commissioner Diane Maxwell
  3. “The Rebirth of Lifetime Annuities in Australia” -Jeremy Cooper
  4. “Home Equity Release” – Andrew Ford
  5. “Shaping the Retirement Income Industry in New Zealand” – Ralph Stewart
  6. “A proposal for lifetime annuities with long term care insurance” – Susan St John

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Module 5 – 5.3 Valuing Risk : certainty Equivalents or Expected Utilities

Module 5 – 5.3 Valuing Risk : certainty Equivalents or Expected Utilities

This short clip explains – for those who are interested – the relationship between the certainty equivalence approach to valuations of risky strategies and the expected utility approach. Briefly.

Our course is introductory and interdisciplinary, so we use a simple “connect the dots”, graphical  approach to valuing risks for players in the games we look at. This approach is based on the intuitive idea that valuations can be expressed in terms of the payoff medium (e.g. money, work effort, net benefit…)  as something between the best and the worst possibility. EU and Prospect theory require much more heavy lifting in terms of intellectual requirements – completely appropriate to a third year under gad course with a microeconomics prerequisite – but not for this course.Note to self:  plan to develop a Mathematica CDF file to permit students to play with various possibilities for risk attitudes that enables them to see the logical relationships between these two approaches  clearly, graphically, and without any heavy math.

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Mixed Strategies

An edited excerpt from Lecture 17 and 18 April 24 2013  on Mixed strategies. We use the “line out throw” 2×2 game to introduce the basic ideas of mixed strategies, nash equilibrium in mixed strategies, and “the indifference principle” https://vimeo.com/65485105

 

There is a fascinating Wolfram cdf player implementation of “rock paper scissors” over on the Wolfram Blog site – well worth having a play with. Let’s students “think” about what might be going on  without having them get bogged down in the computations.

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5.2 Risk attitudes, beliefs and payoffs

Module 5  Introducing Uncertainty  into games of strategy

5.2 Risk attitudes, beliefs,  and payoffs 

This clip explains how a player’s attitude towards risk can be incorporated into the “payoffs” for players in strategic games.

The key idea here is using the graphical “connect the dots” approach to thinking about players’ preferences under uncertainty. A player faces a risk, described by a personal belief about the chances of an event (eg clubs or spades, stock market up or stock market down) or some behaviour (in the Princess Bride, will Wesley put the poison in the cup in front of him or the cup in front of me? Has Wesley developed an immunity to the iocane poison?)  and some relevant consequences (eg monetary losses or gains, or, as in the Princess Bride….life or death). How can we come up with a payoff number that represents the “value” of that risk (for good or for ill) for a player ?

We develop a certainty equivalent approach to valuation (most game theory texts don’t take this approach, they use expected utility theory – but at our introductory and interdisciplinary  level,  EU theory and its’ alternatives, Prospect Theory, are too much of a deviation for us to take)  . Straight lines between “dots” represent risk neutral attitudes; two types of curved lines between dots represent risk averse or risk seeking attitudes. 

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Expressing and exploring ambiguous inductive inferences

A simple geometric tool for exploring implications of ambiguity about the basic belief-components of inverse probability reasoning: base rates of states (priors), and sensitivity and specificity of diagnostic tests (likelihoods).
[WolframCDF source=”https://strategicecon.com/wp-content/uploads/2013/01/ambiguityrighthandwp.cdf” CDFwidth=”689″ CDFheight=”524″ altimage=”https://strategicecon.com/wp-content/uploads/2013/01/imageforAmbiguousbeliefs.png”]

(to download a larger version with control bars on the left side click here [wpdm_file id=1] – you will need Wolfram’s free computable document format cdf player to view and interact with this file. (just like you need a plug in to read pdfs  in your browser)  – click here obtain it  from wolfram’s site – installation is straightforward and seamless ..but you will have to provide a small amount of “registration” type information to Wolfram –  they have been around as long as Apple and Adobe , much longer than Google, and…are as trustworthy …. so don’t be put off by this. Having the cdf player on your local machine is well worthwhile)