Friday, October 9, 2020 10:30 am
-
10:30 am
EDT (GMT -04:00)
Please Note: This seminar will be given online.
|
Actuarial Science and Financial Mathematics Seminar Series
Nan
Zhu,
Professor Link to join seminar: Hosted on Webex. |
The efficiency of voluntary risk classification in insurance markets
It
has
been
established
that
categorical
discrimination
based
on
observable
characteristics
such
as
gender,
age,
or
ethnicity
enhances
efficiency.We
consider
a
different
form
of
risk
classification
when
there
exists
a
costless
yet
imperfectly
informative
test
of
risk
type,
with
the
test
outcome
unknown
to
the
agents
ex
ante.
We
show
that
a
voluntary
risk
classification
in
which
agents
are
given
the
option
to
take
the
test
always
increases
efficiency
compared
with
no
risk
classification.
Moreover,
voluntary
risk
classification
also
Pareto
dominates
a
regime
of
compulsory
risk
classification
in
which
all
agents
are
required
to
take
the
test.
