A Non-Expected Utility Model Based On Info-Modification And Insurance Market Equilibrium Studies

By quantitated decision makers' subjective recept about wealth with utility function, expected utility theory(EUT) introduced the concept of value judgment into theories of decision making under risk and uncertainty. This theoretical innovation made it become the standard theory of individual decision making, and a core component of game theory. However, Empirical studies dating from the early 1950s have revealed a variety of patterns in choice behavior that appear inconsistent with EUT. Because EUT constitutes a key building block of a vast range of economic theory, it should be no surprise, therefore, that developing a better understanding of the determinants of individual choice behavior seemed a natural research priority to many theorists. Around decades of quite intensive research on the topic has generated a great deal of theoretical innovation plus a much richer body of evidence against which models can be judged.In the first half of this paper, we reviewed the shortcomings of expected utility theory and the development of non-expected utility theory, discussed the recent experimental evidence such as event-splitting effects, analyzed the value judgment processes during decision making, constructed a new decision weights function base on conditional probability and info-modification, convert the probability to decision weights, developed a non-expected utility model based on info-modification, and discussed the properties and applications of the model by explained the paradoxes found in empirical studies.The standard theory of insurance based on EUT has some implications that have long been regarded as highly implausible. In the second half of this paper, we applied the non-expected utility model based on info-modification to analyze the principle of insurance market equilibrium, indicated the fact that price equilibrium can gained in insurance market lies in the different risk environment and information accumulated between insurers and proposers, this offer a better understanding of the determinants of insurance market behavior. Then, we discussed the different subjective judgment between insurers and proposers at different info-environment, analyzed the insurance market equilibrium under incomplete market. At the end of this paper, we analyzed the strict insurance rating regulation in China at present, and the trend of insurance premium rate marketization, aimed at achieving a stable, effective and fair market equilibrium, raised policy proposal on regulation mending, data accumulation, actuarial skill improvement and construct actuarial liability-charged system.