people’s responses to longevity risks. For example, the impact of
pooling on mitigating the individual longevity risk in a group of
individuals depends on the size and composition of the group.
Therefore the aggregate mortality experience for a group may
be less predictable than the overall population. Pictorially we
visualize this as a spectrum of curves between the “flat curve”
and the “skinny curve.” The response to this situation may be a
combination of additional longevity risk diversification and longevity swaps.
Furthermore, it is well known that for subgroups of individuals, there are significant variations in mortality experiences
and mortality improvements. For example, in the United States,
there is a large difference in mortality improvements due to race
and educational attainment. 6 When assessing the longevity risk
of an individual or a group of certain socioeconomic status, a
systematic underestimation of the longevity risk may result if
the mortality experience for the socioeconomic group is not
considered. Thus the “skewed curve” picture is often combined
with the “flat curve” or the “skinny curve” picture.
The Presupposition of
Maintaining the Same Lifestyle
Inherent in the longevity risk concept are certain presuppositions. A common presupposition underlying longevity risk is
that maintaining the same standards of living amid changes is
desirable. If an individual or a society accepts lifestyle changes
when circumstances change, maintaining the same living standards may not be the right financial goal. This presupposition
is common for most insurance products.
Change and social mechanisms that deal with change influence how risk is perceived. For example, when a family loses its
home due to fire, the community may come together to help the
family. This is a form of insurance, but the form and the level of
help may be quite different from that which is provided through
commercially available insurance products.
In a society where there is more emphasis on the community
and less on the individual, and in a worldview where acceptance
of change is more of a norm than an exception, there may be less
perceived need to maintain the same standard of living. Thus the
need to mitigate longevity risk may not be as strong.
The Presupposition of Adverse Consequences
Another presupposition of longevity risk is its association with
adverse outcomes of longevity. As we have we mentioned previously, longevity in a younger working-age population generally
improves productivity and economic output. Therefore we
don’t speak of longevity as being a risk to the younger working-age population.
Should longevity necessarily be associated with adverse conse-
quences? The longevity dividend concept embraces the possibility
of a society, not where the elderly become a burden to society, but
one in which the elderly contribute to the society in vibrant and
meaningful ways. 7 With the extension of disease-free life expec-
tancy and the possibility of disability compression, healthier and
longer lives may create economic wealth rather than economic
burden. If this alternate world comes to fruition, the term “risk”
will be used less and less often in conjunction with “longevity.”
The interplay of presuppositions and worldview brings
us to the analysis of longevity risk from the plural rationality
Plural Rationality and Longevity Risk
Social anthropologists, when studying how a society organizes
itself, describe four different ways people perceive the world
and view their social relationships. The four worldviews impact
how they perceive and understand risk. This theory is called
the theory of plural rationality, or the cultural theory of risk. 8
The four perspectives are shown in the following table and described on page 57.
■ ■ Individualism. The individualists value freedom and markets,
and have no group affinity. With respect to economic outlook,
they are the optimists and believe that optimal outcomes can be
reached in equilibrium. Their reaction to longevity risk is to self-insure. They put more emphasis on investment returns than on
longevity risk. A systematic withdrawal strategy (such as the 4
percent rule) is common from this perspective. Individuals will
purchase annuities opportunistically if they perceive potential
gain. There is no forced pooling of individual longevity risks to
enhance societal welfare.
■ ■ Egalitarianism. The egalitarians live within a strong group
boundary but have no hierarchical structure. Everyone in the
group is treated the same. With respect to economic outlook,
they view the world as precarious. Any perturbation of the current state could trigger a total collapse. Thus, efforts are made to
conserve available resources at the expense of potential upside.
With respect to longevity risk, they favor mandatory conversion
of retirement assets into inflation-protected annuities. Longevity risk is pooled and shared equally. Conservative outlooks also
favor the collective management of other risks, such as inflation,
investment, and health risks.
■ ■ Hierarchy. Those with a hierarchical worldview accept
prescribed roles and live within strong group boundaries. Economically, they view the world in equilibrium, but believe it
must be protected from many potential dangers. Risks should be
managed. They pool longevity risks, and manage them through
well-defined social structures. These structures may involve
SOCIAL ANTHROPOLOGISTS, WHEN STUDYING HOW A SOCIETY ORGANIZES ITSELF,
DESCRIBE FOUR DIFFERENT WAYS PEOPLE PERCEIVE THE WORLD AND
VIEW THEIR SOCIAL RELATIONSHIPS. THE FOUR WORLDVIEWS IMPACT
HOW THEY PERCEIVE AND UNDERSTAND RISK.