Write a paper that uses game theory to to set up a game designed to help a consu

Question

Write a paper that uses game theory to to set up a game designed to help a consumer decide whether to buy life insurance or not. To keep the game relatively simple, assume the life insurance being considered is term life, i.e. insurance without an accumulating investment value. Keep in mind that your paper is going to be read by people without prior knowledge of game theory. Remember to cite any outside references used. Hint: The most common set-up for this game is to have a potential insurance buyer playing against 'Mother Nature'.

Explanation / Answer

There are two persons in the game. Player 1 is X1 and player 2 is X2. Here, X1 is the player and X2 is the policy holder. Each time the policy holder fills in the proposal, the game is played. Assume, two strategies are here each: acceptance of rejection for X1 and health or disease for X2.

X1/X2                    healthy proposer ill proposer

Acceptance                      A                                                     C

Rejection B D

This shows that the insurer has to accept a bad risk, it would be better for the insurer to reject the bad risk than a good risk. A and D are good outcomes.In order to find the value of the game for X1, should apply:The minimax criterion are the bayes criterion.

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