Reflexive Game Theory Approach to Mutual Insurance Problem

• Published in: Montenegrin journal of economics 2016-01, Vol.12 (3), p.87-100
• Main Authors: Backovic, Marko, Popovic, Zoran, Stamenkovic, Mladen
• Format: Article
• Language: English
• Subjects: Equilibrium; Game theory
• ISSN: 1800-5845; 1800-6698
• DOI: 10.14254/1800-5845.2016/12-3/6

This paper deals with application of game theory model to insurance market. We observed a form of mutual insurance in conditions of full and partial information obtained by insurance buyers. First part of the paper defines the model of non-cooperative game, followed by principles of optimality, types of stability and equilibrium. Here, model of non-cooperative game has been analyzed under the assumption that players are fully informed. Situation where players are only partially informed requires model which takes into account decision process and analysis of every player's actions. This analysis requires that hierarchical structure among players need to be established. Model of conflict situation, with established hierarchical structure with informational reflexivity, represent the model of reflexive game. We define that reflexive game model, followed by required conditions for which some strategy is informational equilibrium strategy. We then proceed to perform analysis of game theoretic application to mutual insurance model, with hierarchical structure in agent positioning, in conditions of both full and partial information obtained by the player, with the goal of finding equilibrium strategies.