Evolutionary stable strategy for post-disaster insurance : a game theory approach Eid, Mohamed S.; El-adaway, Islam H.; Coatney, Kalyn T.
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.
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