Sharing responsibility: what they didn't teach you in kindergarten

The purpose of this paper is to consider the problem of allocating responsibility for risk through a simple classroom vignette that illustrates some of the difficulties encountered in more complex real‐world scenarios.

After considering a number of ad hoc allocation methods, this study focuses on the Shapley and Aumann‐Shapley values from cooperative game theory.

Shows that the Aumann‐Shapley value provides a useful tool for allocating risk in a real‐world insurance context, and therefore may be used to distribute capital (surplus) and premium loadings.

The paper offers insights into both the challenges of the risk‐allocation problem and its proposed solutions.