In the Insurance Market game, students take on the role of an insurance company, selling home insurance to a town plagued by meteor showers that damage homes.
Key Learning Objectives:
- Asymmetric Information: Asymmetric Information constrains the insurance company to set a single price for the entire town, whereas homeowners individually decide wheatear to buy the insurance or not based on the price and their home value.
- Adverse Selection: This directly leads to Adverse Selection within the set of home owners who decide to buy insurance. High-value home owners who are a higher risk to the insurance company tend to insure themselves whereas low-value home owners evaluate the insurance as too expensive and opt out.
- The Death Spiral: The Death Spiral resulting from adverse selection drives out low risk home owners and forces the insurance company to raise the price every period which will eventually lead to a total collapse of the market.
- Main Courses: health economics; industrial organization; game theory; microeconomics; managerial economics
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