Department of Mathematics

Colloquium

  •  Behavioral Insurance Design
  •  11/17/2016
  •  10:00 AM - 11:00 AM
  •  C304 Wells Hall
  •  Shengchao Zhuang, University of Waterloo

We discuss optimal insurance contract design where an individual's preference is of the rank-dependent expected utility (RDU) type. Although this problem has been studied in the literature, their contracts suffer from a problem of moral hazard for paying more compensation for a smaller loss. Our project addresses this setback by exogenously imposing the constraint that both the indemnity function and the insured's retention function be increasing with respect to the loss. We characterize the optimal solutions via calculus of variations, and then apply the result to obtain explicitly expressed contracts for problems with Yaari's dual criterion and general RDU.

 

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Department of Mathematics
Michigan State University
619 Red Cedar Road
C212 Wells Hall
East Lansing, MI 48824

Phone: (517) 353-0844
Fax: (517) 432-1562

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