In equilibrium, they transfer longevity risk to uninformed agents at a cost, where the cost is represented by retention of part of the exposure and/or by a risk premium.
Entropy merely resolves to equilibrium.
Whereas NP already warned that introducing a MCL did not necessarily imply a cross-subsidization from low risks to high risks (in their equilibrium high risks enjoy the same contract as under laissez faire), we point out that the outcome could be even worse: all individual types cross subsidize all insurers.
Earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral Nash equilibrium.
Here, only the risk dominant equilibrium is evolutionarily stable.
There are two equilibriums for this game: (1) ALL COOPERATE, the Pareto optimal equilibrium; (2) ALL DEFECT, the risk dominant equilibrium.
If the amount of noise in the system increases, it is more likely that the system is found in the risk dominant equilibrium.
Assuming randomness for an ordinary Stag Hunt, however, only the risk dominant equilibrium evolves: only defection is stochastically stable (Young 1993).
While subjects who cannot communicate always learn the risk dominate equilibrium, those who can communicate always learn the Pareto efficient equilibrium (Kim and Sobel 1995), even in situations where cooperation may be threatened by theft (Silk et al. 2000).
Biographers who tackle Wren risk losing their equilibrium.
If the market is served by a (specialized) duopoly, that is, a single insurer offers the contract aimed at the high risks and a single insurer offers the contract aimed at the low risks, the equilibrium becomes undetermined, as pointed pout by Villeneuve (2003).
