Game -theoretic applications in insurance economics

This dissertation comprises three essays. Each essay has its own specific focus and perspective within the scope of real-world applications of insurance economics, while the three essays integrate with one another to prove a coherent overall picture on how game theory, as a powerful instalment, can offer efficient analyses on unconventional problems.;Chapter 2 proposes a tenor war game-theoretic model based on search theory and Colonel Blotto game to investigate the terrorism risk frequency and prove that equilibrium solutions will achieve once the both sides (terrorists and counter-terrorists) choose to allocate their resources to all targets proportionally in either scenario, simultaneous attacks or one target a time. Our theorems also show that it is easy to estimate the parameters needed in our model once historic loss data are available.;Chapter 3 studies the best social structure for our society to maintain its stability while enduring catastrophic attacks. We employ a class of symmetric, ordinal 2 x 2 games---including the frequently studied Prisoner's Dilemma, Chicken, and Stag Hunt---to model the stability of the social contract in the face of catastrophic changes in social relations. In two alternative analyses, we find that the Stag Hunt provides a relatively stable and efficient normative model for society.;Chapter 4 considers the ease of an insurance market in which both buyers and sellers are risk averse, and the buyers are not subject to a budget constraint. We argue that optimal insurance contracts generally do not exist as competitive-equilibrium solutions in markets with continuous random loss amounts and price-taking risk-averse buyers and sellers. As an alternative, we propose a bid-offer Cournot-equilibrium framework to identify and study optimal contracts. The Cournot formulation shows that: (1) optimal insurance contracts are characterized by policy limits, as commonly observed in real-world markets; and (2) deductibles and/or partial-insurance arrangements must be justified on other grounds.;We conclude the dissertation in Chapter 5.