Chaitanya Joshi, Jinming Yang, Sergeja Slapnicar, Ryan K L Ko
arXiv 28 Nov 2024 · Econometrics · publishedComputers & Security (2025) · 5 citations (OpenAlex)
arXiv:2411.18838 · PDF · DOI · OpenAlex · Extracted main text
Protecting against cyber-threats is vital for every organization and can be done by investing in cybersecurity controls and purchasing cyber insurance. However, these are interlinked since insurance premiums could be reduced by investing more in cybersecurity controls. The expected utility theory and the prospect theory are two alternative theories explaining decision-making under risk and uncertainty, which can inform strategies for optimizing resource allocation. While the former is considered a rational approach, research has shown that most people make decisions consistent with the latter, including on insurance uptakes. We compare and contrast these two approaches to provide important insights into how the two approaches could lead to different optimal allocations resulting in differing risk exposure as well as financial costs. We introduce the concept of a risk curve and show that identifying the nature of the risk curve is a key step in deriving the optimal resource allocation.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Marotta, A., Martinelli, F., Nanni, S., Orlando, A., and Yautsiukhin… (2017) Cyber-insurance survey | 1.000 | 12 | 4 | 100% |
| 2 | Hwang, I. D (2021) Prospect theory and insurance demand: Empirical evidence on the role of loss aversion | 1.000 | 6 | 3 | 100% |
| 3 | Sydnor, J (2010) (over)insuring modest risks | 1.000 | 5 | 3 | 100% |
| 4 | Tversky, A. and Kahneman, D (1992) Advances in prospect theory: Cumulative representation of uncertainty | 0.950 | 7 | 4 | 86% |
| 5 | de Smidt, G. and Botzen, W (2018) Perceptions of corporate cyber risks and insurance decision-making | 0.928 | 4 | 3 | 100% |
| 6 | Bruhin, A., Fehr-Duda, H., and Epper, T (2010) Risk and rationality: Uncovering heterogeneity in probability distortion | 0.843 | 4 | 3 | 75% |
| 7 | Back, K. E (2017) 3Utility and Risk Aversion | 0.811 | 4 | 2 | 100% |
| 8 | Uuganbayar, G., Yautsiukhin, A., Martinelli, F., and Massacci, F (2021) Optimisation of cyber insurance coverage with selection of cost effective security controls | 0.811 | 4 | 2 | 100% |
| 9 | Kunreuther, H. and Pauly, M (2004) Neglecting disaster: Why don't people insure against large losses? | 0.737 | 3 | 2 | 100% |
| 10 | Kahneman, D. and Tversky, A (1979) Prospect theory: An analysis of decision under risk | 0.737 | 3 | 2 | 100% |
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