Making Decisions About Liability And Insurance: A Special Issue of the Journal of Risk and Uncertainty

Springer Science & Business Media
Free sample

Two related trends have created novel challenges for managing risk in the United States. The first trend is a series of dramatic changes in liability law as tort law has expanded to assign liability to defendants for reasons other than negligence. The unpredictability of future costs induced by changes in tort law may be partly responsible for the second major trend known as the `liability crisis' - the disappearance of liability protection in markets for particularly unpredictable risks.
This book examines decisions people make about insurance and liability. An understanding of such decision making may help explain why the insurance crisis resulted from the new interpretations of tort law and what to do about it. The articles cover three kinds of decisions: consumer decisions to purchase insurance; insurer decisions about coverage they offer; and the decisions of the public about the liability rules they prefer, which are reflected in legislation and regulation. For each of these three kinds of decisions, normative theories such as expected utility theory can be used as benchmarks against which actual decisions are judged.
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Additional Information

Publisher
Springer Science & Business Media
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Published on
Dec 6, 2012
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Pages
139
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ISBN
9789401121927
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Best For
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Language
English
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Genres
Business & Economics / Economics / Microeconomics
Business & Economics / Finance / General
Business & Economics / Insurance / General
Business & Economics / International / General
Business & Economics / Operations Research
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Content Protection
This content is DRM protected.
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Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it was not possible to provide comprehensive coverage of insurance economics in this book, these readings provide an essential foundation to those who desire to conduct research and teach in the field. In particular, we hope that this compilation and our introduction will be useful to graduate students and to researchers in economics, finance, and insurance. Our criteria for selecting articles included significance, representativeness, pedagogical value, and our desire to include theoretical and empirical work. While the focus of the applied papers is on property-liability insurance, they illustrate issues, concepts, and methods that are applicable in many areas of insurance. The S. S. Huebner Foundation for Insurance Education at the University of Pennsylvania's Wharton School made this book possible by financing publication costs. We are grateful for this assistance and to J. David Cummins, Executive Director of the Foundation, for his efforts and helpful advice on the contents. We also wish to thank all of the authors and editors who provided permission to reprint articles and our respective institutions for technical and financial support.
The recent introduction of two European index options on the FTSE Eurotrack 100 and the Eurotop 100 is evidence of a demand from investors to hedge pan-European risk. The FTSE Eurotrack 100 was designed to closely resemble the longer established and widely quoted Morgan Stanley European index. The Eurotrack 100 covers a hundred companies in eleven countries in continental Europe. The index is denominated in DM and' a breakdown by value into the different countries covered is given in figure 1. Capitalisation weights for Figure 1 FT-SE Eurotrack 100 Index Norway mark Germany Italy Switzerland France Netherlands Another recently introduced European index is the Eurotop 100 index denominated in EeUs, this index contains twenty two UK companies which represent 27% by value of this index. The attraction of investments in these indices is that they provide a basis for weighted exposure to Europe, investors can then build on this 240 basis by investment in individual countries. The multinational context of the universe of shares defined by this index raises some new questions for the selection of portfolios, whether the portfolios are chosen for absolute performance or to track the index. Various possible objectives of portfolio selection will be discussed, in all cases the crucial role of the covariance matrix of returns is clear. The extra source of risk present in a multinational portfolio is the combination of country risk coupled with foreign exchange risk. Two models of the return covariance matrix are proposed and examined.
Game theory, the formalized study of strategy, began in the 1940s by asking how emotionless geniuses should play games, but ignored until recently how average people with emotions and limited foresight actually play games. This book marks the first substantial and authoritative effort to close this gap. Colin Camerer, one of the field's leading figures, uses psychological principles and hundreds of experiments to develop mathematical theories of reciprocity, limited strategizing, and learning, which help predict what real people and companies do in strategic situations. Unifying a wealth of information from ongoing studies in strategic behavior, he takes the experimental science of behavioral economics a major step forward. He does so in lucid, friendly prose.

Behavioral game theory has three ingredients that come clearly into focus in this book: mathematical theories of how moral obligation and vengeance affect the way people bargain and trust each other; a theory of how limits in the brain constrain the number of steps of "I think he thinks . . ." reasoning people naturally do; and a theory of how people learn from experience to make better strategic decisions. Strategic interactions that can be explained by behavioral game theory include bargaining, games of bluffing as in sports and poker, strikes, how conventions help coordinate a joint activity, price competition and patent races, and building up reputations for trustworthiness or ruthlessness in business or life.


While there are many books on standard game theory that address the way ideally rational actors operate, Behavioral Game Theory stands alone in blending experimental evidence and psychology in a mathematical theory of normal strategic behavior. It is must reading for anyone who seeks a more complete understanding of strategic thinking, from professional economists to scholars and students of economics, management studies, psychology, political science, anthropology, and biology.

“Ideas of economic democracy are very much in the air, as they should be, with increasing urgency in the midst of today’s serious crises. Richard Wolff’s constructive and innovative ideas suggest new and promising foundations for much more authentic democracy and sustainable and equitable development, ideas that can be implemented directly and carried forward. A very valuable contribution in troubled times.”—Noam Chomsky

"Probably America's most prominent Marxist economist."—The New York Times

Capitalism as a system has spawned deepening economic crisis alongside its bought-and-paid-for political establishment. Neither serves the needs of our society. Whether it is secure, well-paid, and meaningful jobs or a sustainable relationship with the natural environment that we depend on, our society is not delivering the results people need and deserve.

One key cause for this intolerable state of affairs is the lack of genuine democracy in our economy as well as in our politics. The solution requires the institution of genuine economic democracy, starting with workers managing their own workplaces, as the basis for a genuine political democracy.

Here Richard D. Wolff lays out a hopeful and concrete vision of how to make that possible, addressing the many people who have concluded economic inequality and politics as usual can no longer be tolerated and are looking for a concrete program of action.

Richard D. Wolff is professor of Economics emeritus at the University of Massachusetts, Amherst. He is currently a visiting professor at the New School University in New York. Wolff is the author of many books, including Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It. He hosts the weekly hour-long radio program Economic Update on WBAI (Pacifica Radio) and writes regularly for The Guardian, Truthout.org, and the MRZine.


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