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Risk aversion influence on insurance market

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  • Raduna, Daniela Viviana
  • Roman, Mihai Daniel
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    Abstract

    Human behavior, rational or irrational one, influences one of the most complex markets worldwide: the insurance market. In most situations, insurance markets are not competitive and risk neutral insurers negotiate under asymmetric information with actors who exhibit risk aversion. In this paper we develop a game theory model that analyzes the negotiation of an insurance contract under risk aversion conditions (in static and dynamic approach). Risk aversion influence was introduced in the model by intermediary of a discount factor (the in equivalent to players’ patience) instead of using a utility function. The main conclusion is that the customer prefers to agree on a contract of insurance in the first stage of negotiation than having to wait for another round of negotiations, during which they could register various losses.

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    File URL: http://mpra.ub.uni-muenchen.de/37725/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37725.

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    Date of creation: 13 Nov 2011
    Date of revision: 01 Feb 2012
    Handle: RePEc:pra:mprapa:37725

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    Keywords: contract negotiations; model; insurance; dynamic game; risk aversion; discount factor;

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