Evolutionary Stable Strategy for Postdisaster Insurance: Game Theory Approach

Abstract

Natural disasters leave the impacted regions with financial burdens both on the individual and governmental levels. Thus, the goal of the associated stakeholders is to maximize the host communities' welfare through minimizing their post-disaster financial burdens. Accordingly, this paper attempts to find a post-disaster insurance plans equilibrium so as to mitigate the financial impacts associated with the natural disasters. Utilizing an evolutionary game theory approach, the equilibrium is investigated between three different players including: resident families purchasing insurance plans; insurance companies offering different insurance plans; and the government agency that implements post disaster relief financial plans. The authors determined a set of decision actions as well as utility functions for the aforementioned stakeholders. Moreover, the authors created a hypothetical sample of 1,000 heterogeneous income level resident families, three insurance companies offering three unique and different insurance plans per company and two post disaster financial relief plans to be utilized by the government agency. The proposed model was implemented on NetBeans IDE 7.4 platform using JAVA programming language on the hypothetical case study simulating resident family evolutionary learning process in reaching an equilibrium. The results indicate that: (1) resident families tend to prefer insurance plans with the least premium value and coverage; (2) insurance plans with the most comprehensive coverage received the least demand; and (3) the evolutionary stable strategy path oscillates between chosen plans and insurers over time as a result of the stochastic and dynamics nature of the factors associated with disaster management. Currently, the authors are working to develop the model further to better account for simultaneous actions by all stakeholders (not only resident families), population growth and changes in financial and income standards. Ultimately, this evolutionary game theory model will be tested on real post natural disasters data representing physical damages in coastal Mississippi Counties post Katrina, so as to determine the significant increase in the host community welfare.

Integrating the Social Vulnerability of Host Communities and the Objective Functions of Associated Stakeholders during Disaster Recovery Processes Using Agent-Based Modeling

“…Post-disaster insurance policies also affect the recovery processes (Eid et al 2015;Olshansky et al 2006), and have been reported as a key factor in the success of redevelopment projects because it provides adequate financial means for recovery (NDRF 2011;Olshansky et al 2006). To this extent, to optimize the various disaster recovery strategies, one should understand and account for the complex interactions among the different multisector stakeholders (Eid and El-adaway 2016a).…”

“…Disasters are defined as "nonroutine events in societies : : : that involve conjunctions of historical conditions and social definitions of physical harm and social disruption" (Picou et al 2004). Disaster events have led to billions of dollars in infrastructure losses because of their increasing rates and magnitudes in the last decade (Eid et al 2015;Economics of Climate Adaptation Working Group 2009). Recent examples in the United States include: (1) Hurricane Andrew in 1992 ($20.9 billion); (2) the Northridge earthquake in 1994 ($15.9 billion); (3) the four Hurricanes Charlie, Ivan, Frances, and Jeanne in 2004 (total of $21.9 billion); (4) Hurricane Katrina in 2005 ($125 billion); (5) Hurricane Rita in 2005 ($10 billion); (6) Hurricane Wilma, also in 2005, ($16.8 billion); (7) Hurricane Ike in 2008 ($19.3 billion); and (8) Hurricane Sandy in 2012 ($68 billion) (Eid et al 2015).…”

Sustainable Disaster Recovery Decision-Making Support Tool: Integrating Economic Vulnerability into the Objective Functions of the Associated Stakeholders

“…It is understood that the insurers follow a risk assessment in their objective functions. Nevertheless, following Eid et al (2015), an evolutionary game theory approach can be utilized to determine a stable postdisaster insurance profile between residents and insures that would increase both their utility functions…”

“…At the initial step, the residents were uniformly distributed among the three insurance companies along with the no insurance option. Through the utilization of MPS as a social learning technique, as previously discussed, and following the game theory proposed by Eid et al (2015), the residents changed their choices to attain the highest possible objective function through mimicking the fittest set of residents among them.…”

A model of discrete zero-sum two-person matrix games with grey numbers to solve dispute resolution problems in construction

“…Naderpajouh et al (2014) used it in risk management between developer and opposition in infrastructure developments. Also, game theory has been used in the payment problems (Wu et al 2011), renewal of construction objects (Antuchevičiene et al 2006), cooperation during project delivery (He et al 2016), and post-disaster management (Eid et al 2015). Even some researchers have used game theory in studying the delayed projects (Castro et al2007;Estévez-Fernández 2012).…”