Religion as Imaginary Risk Buffer:Multiple Equilibria in Life Insurance

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Religion as an Imaginary Risk Buffer: Multiple Equilibria in Life Insurance
"Therefore, do not be anxious about tomorrow, for tomorrow will be anxious for itself. Sufficient for the day is its trouble (The ESV Bible, Matt 6.34)." Trends in life insurance uptake are one area that has gained increasing attention among economic researchers and seems to follow a similar drift recently observed among Israelites and Japanese in terms of their readiness to take the COVID-19 vaccine (Lahav et al. 1). While citizens from the two studied countries may have equal risks of coronavirus infections, Lahav et al.'s (1) study has found that Israelites with strong religious beliefs are less likely to take a jab than the less religious Japanese. Like vaccinations, life insurance cover protects individuals against future risks, although religious beliefs have been found to serve as imaginary risk buffers among some faithful based on the interpretation of religious texts such as the Bible (Scheve and Stasavage 255). In the United States, individuals sign a contract with an insurance company to pay a lump sum amount as a death benefit to beneficiaries in exchange for premium payments following death (Kilroy and Metz). Standard economics theories are often designed on assumptions that humans are rational actors in their self-interests.
Nevertheless, reliability in rationality has often been questionable when economic models fail to accurately predict market behaviors. The shortcomings of standard economic modeling of such behaviors tend to emerge from failure in economic theories to account for systematic mental biases inherent in all human decisions and judgments. An increasing amount of research in behavioral and quasi-rational economics has shown that humans are quasi-rational actors, largely impacted by the contexts while making decisions. Hoff and Stiglitz (25) view the decision-makers in such contexts as the enculturated actors, whose perceptions, preferences, and cognition are all subject to social contexts that they are accustomed to and cultural, mental models such as identities and categories worldviews, and narratives in making decisions. This paper attempts to apply quasi-rational economics and multiple equilibria concepts to suggest the role of an imaginary risk buffer accounting for differences in life insurance uptake among religious and secular states despite shared risks.
Trends in Life Insurance among Secular and Religious States
Economic theories that predict consumer behaviors and market trends traditionally assume that there exists a market equilibrium where consumers make optimal and rational choices concerning prevailing or anticipated future risks. The potential reason why this is not the case is that consumers are quasi rational in that their perceptions, preferences, and cognition are all subject to social contexts and cultural, mental models that inform their ways of making decisions (Hoff and Stiglitz 25). These observations inform that other players tend to impact consumption among consumers apart from the traditional laws of demand and supply. Accounting for these players, literature on multiple equilibria has investigated several areas that are constantly affected by these trends, including persistent poverty, excessive economic volatility, market fashions and fads, and other similar macroeconomic phenomena. These events often appear to be anomalies in traditional economic models of rational behaviors studied in economics. Due to a poor understanding of specific correlation and causal effects, factors resulting in multiple equilibria have been described using different terms, including "Animal spirits," "irrational exuberance," "sunspots," "bubbles" and "indeterminacy." John Maynard Keynes, the renowned British economist, termed these factors as "animal spirits" to describe people's behaviors in times of uncertainty and economic distress (Jang). The idea of multiple equilibria asserts that the future values of states in macroeconomics are challenging to accurately predict based on the present values of the states or from theoretical economic principles, even when firms maintain a complete rational behavior.
In dynamic economies, laws of motion describing macroeconomic states admit the existence of more than a single factor or broadly several asymptomatic players that are responsible for multiple equilibria. This concept can be demonstrated using an example of multiple laws of motion in describing a poorly understood but pernicious form of indeterminacy that occurs even when there are no other existing variables that directly link to the market or industry phenomenon. Similar to the Solow model, convergence models are poorly supported by data (Koutun and Karabona 4). For instance, even when the savings rates and the population growth rate may tend to be similar in two countries, the economic development measured by gross domestic product (GDP) per capita varies across different countries. Perhaps it might be suggested that the economic outcome also depends on the expectations or the history of a country. This logic might need the endogenization of factors that are considered exogenous in the Solow model. Multiple equilibria account for complex observations made, such as why the rates of investments in two seemingly similar countries could be different and why the given savings rates often translate to varying growth rates. History and expectations could be the invisible factors that impact different outcomes, and these might work through complementarities and increasing returns. In increasing returns, the more a country or citizens do something, the better they become at such. Besides, complementarities ascribe that the more other people do something, the greater incentive others gain to do it. In multiple stable equilibrium situations, self-fulfilling expectations might define the prevailing channel, either increasing returns or complementarities.
Informed by multiple equilibria, it then emerges that in countries where religion plays a significant role in the lives of citizens, the social spendingin terms of GDP per capita is always high. Scheve and Stasavage (5) identify social spending to particularly relate to spending in healthcare, unemployment benefits, as well as retirement spending. Among twenty OECD countries, those nations that were highly religious between 1990 and 1998 spent more compared to more secular countries as shown in Fig 1 below. The scatterplot shows a negative association between social spending and the levels of religiosity of countries. The x-axis represents the responses of citizens from the indicated countries about the importance of God in their lives while the y-axis reflects the amount spent by governments on social welfare. As observed, people’s attitudes, including those of governments, towards life and social insurance can be impacted by religion. In governments that believe religion is the ultimate cover in their uncertain days, they will spend less compared to those that are largely secular.
Fig 1 Relationship between the religiosity of countries and social spending (Scheve and Stasavage 6)
Concerning Fig 1 above, the OECD report shows that France spends higher than the United States but it emerges that France is more secular than the United States based on the responses. The latest figures show that France has higher numbers of atheists compared to the United States, according to the Pew Research Center as shown in Fig 2 below. In Fig 2, the percentage of Americans who are likely to be atheists, or disbelief in God is 4 % while that of France is 15%. However, according to Worldometer, while the United States has a population of 331 million, France has only 65 million, which is almost a fifth of the total population in the United States. Yet, the levels of social spending in France are higher compared to that in the U.S. Following the traditional demand and supply theory, economists would expect the levels of social spending in the U.S to be higher compared to those in the United States. Statistics from the OECD also show that France is ahead of the United States in terms of social spending in pension benefits and private social health support through taxes. France is ranked first in gross public social spending and first in terms of net total social spending. Contrary, the United States is ranked position 21 among all OECD countries on the same metrics as France as shown in Fig 3 below.
Fig 2 Map showing percentages of secularity among different countries (Pew Research Center)
Fig 3 Gross and net social spending in OECD countries in 2017 (OECD)
From Fig 1, Italy is highly religious compared to Iceland, but more than Iceland. This observation shows a non-linear correlation between religiosity and social welfare spending, which calls for a theory that accounts for these differences. The theory of multiple equilibria resolves to account for these peculiarities in observations made in Fig 1.
Analysis
Scheve and Stasavage (19) suggest that religious participation depends on a network of externalities, meaning that the more one anticipates that others will behave more religiously, the greatest pleasure they expect to derive from becoming religious. In their analysis, the authors also suggest that two different countries may present with similar parameters based on economic risks denoted as (λ, θ) and preferences about leisure time α, but may have varying equilibrium outcomes in terms of social insurance and religiosity. The authors have modeled the network externality, v for individual, i as a function of the preferences based on the religiosity of other persons as shown in Equatio...