Not a fallacy of the law of large numbers : pooling risks and the utility of insurance

Albrecht, Peter

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URN: urn:nbn:de:bsz:180-madoc-418297
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Volume: 191
Place of publication: Mannheim
Publication language: English
Institution: Außerfakultäre Einrichtungen > Institut für Versicherungswissenschaft
Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht)
MADOC publication series: Lehrstuhl für ABWL, Risikotheorie, Portfolio Management und Versicherungswirtschaft (Albrecht) > Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Subject: 330 Economics
Abstract: Risk pooling involves the possibility of embedding a risk considered to be transferred to an insurance company in a collective of independent and identically distributed risks. We consider mutual insurers and stock insurance companies as well as alternative possibilities for setting the premium. Making standard assumptions with respect to the utility function and the distribution of claims, we are able to demonstrate that pooling risks on the side of the insurance company is beneficial for the potential policyholder in terms of expected utility.

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