Working Paper: NBER ID: w11485
Authors: Wojciech Kopczuk; Joel Slemrod
Abstract: We model denial of death and its effect on economic behavior. Attempts to reduce death anxiety and the possibility of denial of mortality-relevant information interact with intertemporal choices and may lead to time-inconsistent behavior and other "behavioral" phenomena. In the model, repression of signals of mortality leads to underconsumption for unsophisticated individuals, but forward-sophisticated individuals may over-consume in anticipation of future denial and may seek ways to commit to act according to one's mortality prospects as currently perceived. We show that the mere possibility of engaging in this kind of denial leads to time-inconsistent but efficient behavior. Refusal to face up to the reality of death may help explain a wide range of empirical phenomena, including the underutilization of tax-advanced inter vivos gifts and inadequate purchase of life insurance.
Keywords: death anxiety; economic behavior; repression; intertemporal choices
JEL Codes: D11; D81; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| denial of mortality signals (D91) | underconsumption (E21) |
| denial of mortality signals (D91) | overconsumption (E21) |
| repression of mortality signals (I12) | time-inconsistent behavior (D15) |
| fear of death (J17) | skewed perception of mortality risk (J17) |
| skewed perception of mortality risk (J17) | consumption behavior (D10) |
| perceived mortality risk (J17) | utility (L90) |