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transfers by the primary insurer are for financial
responsibility only, the primary insurer retains the
financial responsibility for any obligations the reinsurer
and the pool are unable to meet.

Q15. Discuss the concept of utility and game
theory.

Ans. A risk neutral decision-maker would have a utility
function that is linear. A risk averse one would have a
utility function that increases progressively at lower
rates, or had a negative second derivative. A decision
maker who favoured risk would have a utility function,
that increases at faster rates or have a second
derivative.

Utility theory: Many individuals gamble. This
characteristics of risk-seeker, and insure, which is
characteristic of a risk averse entity. Therefore, actual
utility functions are likely to be more complex than a
simple curve with a consistently signed second
derivative. Utility theory attempts to approximate the
actual satisfaction levels of various outcomes to indicate

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