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Insurance Contracts, As Two-Person Games

Author

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  • Robert B. Miller

    (The University of Wisconsin)

Abstract

In this paper, the problem of completing a contract between a buyer and a seller of insurance is presented as a two-person, zero-sum game, and previous results concerning optimal insurance contracts are reviewed from the viewpoint of game theory. While this point of view seems unrealistic, it is seen to lead to theorems which involve contracts actually encountered in the real world. It is shown that an insurance agreement which splits each loss proportionately between the insurer and the insured is optimal from the viewpoint of a risk averting insurance company that seeks to maximize its expected utility when the net insurance premium is fixed.

Suggested Citation

  • Robert B. Miller, 1972. "Insurance Contracts, As Two-Person Games," Management Science, INFORMS, vol. 18(7), pages 444-447, March.
    • Handle: RePEc:inm:ormnsc:v:18:y:1972:i:7:p:444-447
    DOI: 10.1287/mnsc.18.7.444
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    Cited by:

    1. Jiazhen Peng & Xiaojun Shan & Yang Gao & Yohannes Kesete & Rachel Davidson & Linda Nozick & Jamie Kruse, 2014. "Modeling the integrated roles of insurance and retrofit in managing natural disaster risk: a multi-stakeholder perspective," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 74(2), pages 1043-1068, November.

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