Economics of Risk and Insurance

This is a course that completes the advanced study of economics within the Master by providing knowledge and competences to deal with complex issues of choices under uncertainty and insurance markets in risky environment using foundations of Economics. It has two parts: the first part provides a graduate-level introduction to approaches to risk and the role of strategic interaction. The second part deals with the relevant knowledge behaviour of agents, household finance and the role of information for individuals and firms, by providing examples in several domains that make use of data and big data.

a.1) Ability to understand models of decision under uncertainty and markets
a.2) Ability to discern different approaches to risk in economic decision making
a.3) Ability to conceptualise and apply strategic choices of economic agents.
a.4) Ability to understand formal models of information and the impact
a.5) Ability to conceptualise the role of information in economics

b) Applying knowledge and understanding:
b.1) Ability to become familiar with different kinds of models of economies under risk.
b.2) Ability to apply models for strategic interactions.
b.3) Ability to apply and find solutions under uncertainty.
b.4) Ability to apply and find solutions with asymmetric information

c) Making judgements
c.1) Ability to judge and discuss trade-offs in markets with risk.
c.2) Ability to judge and discuss trade-offs in strategic choices.
c.3) Ability to judge and discuss trade-offs in the context of markets affected by asymmetric information.

d) Lifelong learning skills
d.1) Master complex problems with risk.
d.2) Master assumptions of economic problems with data
d.3) Ability to make use of new tools and adapt competences.

This course places the emphasis on economic issues which deal with risk and information. There are no formal prerequisites, but successful completion of standard undergraduate course in microeconomics and basic knowledge of optimisation, statistics and probability is highly recommended.

Decision making under uncertainty.
The expected utility model, risk aversion, risk premium, the structure and value of information.
How to insure against risks.
The role of information in economics: theory and applications. Markets with symmetric information and asymmetric information.
Adverse selection and moral hazard.
Elements of Household finance
More precisely:
- Expected utility theory and Risk aversion
- Experimental paradoxes in the emiprical evidence
- Household Portfolio choice (with applications on real data)
- Insurance and hidden information: adverse selection and screening
- Insurance and hidden action: moral hazard
- Household Finance

The course is based on case studies: the lectures slides will be provided on the dedicated moodle platform, however elements of the course content are also in:

The Economics of Risk and Time, di Christian Gollier (MIT Press)

Grading is based on a final written exam, four or five questions (closed book) covering the material of the course. Each question consists of 3/5 subquestions, each worth a specific number of points, which is specified on the side and a maximum aggregate score of 100. The minimum passing score is 60/100, corresponding to a grade equal to 18/30. There is voluntary participation to a homework to be submitted during the term (deadline and submission guidelines will be provided on Moodle) granting a boost to the final grade equal to up to 2/30 if the exam is passed and the grade accepted during the first exam session available, whereas the it grants up to 1/30 extra points if the exam is passed and the grade accepted during the second exam session. The assignment does not result in extra points if the exam is attempted either during the third or the fourth exam session.

Attendance of in-person lectures and tutorial classes.

Italian

This syllabus is provisional and may be subject to small changes during the term.

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