1. Was That A Rational Decision? Behavioral Economics in Reinsurance William Samuelson, Professor of Finance and Economics at Boston University’s School of Management Chris Svendsgaard, Senior Actuary at Swiss Re Barry Zurbuchen, Vice President at Allied World

2. Outline Introduction (Zurbuchen) The Winner’s Curse: Example (Samuelson) The Winner’s Curse in Reinsurance (Svendsgaard) Pitfalls in Assessing Risks (Samuelson)

3. Overview Behavioral Economics = Psychology + Economics Deviations from standard economic model –Bounded Rationality – Limited cognitive abilities –Bounded Willpower – Make choices not in our long-run interest –Bounded Self-interest – Willing to sacrifice for others

4. Bounded Rationality Cognitive Biases Limited brain power and time – Therefore “rational” to adopt rules of thumb Overconfidence Anchoring Extrapolation Overreaction