You Only Die Once: Managing Discrete Interdependent Risks

31 Pages Posted: 5 Aug 2003 Last revised: 8 May 2012

See all articles by Geoffrey M. Heal

Geoffrey M. Heal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2003

Abstract

This paper extends our earlier analysis of interdependent security issues to a general class of problems involving discrete interdependent risks with heterogeneous agents. There is a threat of an event that can only happen once, and the risk depends on actions taken by others. Any agent's incentive to invest in managing the risk depends on the actions of others. Security problems at airlines and in computer networks come into this category, as do problems of risk management in organizations facing the possibility of bankruptcy, and individuals' choices about whether to be vaccinated against an infectious disease. Surprisingly the framework also covers certain aspects of investment in R&D. Here we characterize Nash equilibria with heterogeneous agents and give conditions for tipping and cascading of equilibria.

Suggested Citation

Heal, Geoffrey M. and Kunreuther, Howard C., You Only Die Once: Managing Discrete Interdependent Risks (August 2003). NBER Working Paper No. w9885. Available at SSRN: https://ssrn.com/abstract=430599

Geoffrey M. Heal (Contact Author)

Columbia Business School - Finance and Economics ( email )

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Howard C. Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department ( email )

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National Bureau of Economic Research (NBER)

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