Decision-making on cyber risk: Interaction between market insurance and risk control measures under prospect theory
Type
conference paper
Date Issued
2018-07-30
Author(s)
Abstract
This paper studies decision-making on cyber risk management in the presence of interdependent risk, comparing market insurance, self-protection and self-insurance. Our economic decision model reflects interdependent risk and loss aversion, a combination that to the best of our knowledge has not been examined in the literature, but is increasingly relevant in an interconnected world. We find that an agent with self-protection as the reference point is likely not to invest in other risk management activities (market insurance and self-insurance), providing support for the anecdotal evidence of a fatalistic behavior with respect to cyber risks. However, we empirically show that demand for additional risk management activities might increase as agents are exposed to increasing frequency rate year-by-year. The focus of our paper is on the increasingly relevant field of cyber risk, but the results can be generalized to any other interdependent risk under loss aversion.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Event Title
APRIA 2018 Annual Meeting
Event Location
Singapore
Event Date
July 29, 2018 - Aug 1, 2018
Division(s)
References
http://irfrc.ntu.edu.sg/NewsnEvents/annualconference/Year2018/Pages/Programme.aspx
Eprints ID
255597
File(s)![Thumbnail Image]()
Name
Eling Jung Cyber_APRIA2018.pdf
Size
470.94 KB
Format
Adobe PDF
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