Game Theory Applied to Life Insurance

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Game Theory Applied to Life Insurance
Should a consumer buy term life insurance or not? The answer to this question can be modeled, although with highly questionable validity, by game theory.
Game theory has long been utilized by the insurance industry to determine who to insure, and how much to charge them for insurance, based on statistics associated with illness and mortality (Spiegel 1991, p. 136). The reason that the interaction between a consumer and an insurance company can be characterized as a game is twofold: each side is betting on an outcome; and each side is playing against the other (Miller 2003, p. 215). In the term life insurance scenario, the decision to buy has a different twist, as the potential consumer is playing not...

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