A game-theoretic analysis of information security investment for multiple firms in a network

The application of Internet of Things promotes the cooperation among firms, and it also introduces some information security issues. Due to the vulnerability of the communication network, firms need to invest in information security technologies to protect their confidential information. In this paper, considering the multiple-step propagation of a security breach in a fully connected network, an information security investment game among n firms is investigated. We make meticulous theoretic and experimental analyses on both the Nash equilibrium solution and the optimal solution. The results show that a larger network size (n) or a larger one-step propagation probability (q) has a negative effect on the Nash equilibrium investment. The optimal investment does not necessarily increase in n or q, and its variation trend depends on the concrete conditions. A compensation mechanism is proposed to encourage firms to coordinate their strategies and invest a higher amount equal to the optimal investment when they make decisions individually. At last, our model is extended by considering another direct breach probability function and another network structure, respectively. We find that a higher connection density of the network will result in a greater expected cost for each firm.     

Security investment and information sharing in the market of complementary firms: impact of complementarity degree and industry size

We study a differential game of information security investment and information sharing in a market consisting of n complementary firms. Two game approaches, the non-cooperative game and the totally cooperative game, are employed to investigate the steady state strategy of each firm. Under certain conditions, a unique steady state can be obtained for both games. We find that the steady state security investment and information sharing level are not always less in the non-cooperative game than that in the totally cooperative game. In addition, some theoretical analyses are made on the impacts of the complementarity degree and industry size on firms’ steady state strategies for both games. Finally, some numerical experiments are conducted to give some insights related to the instantaneous profit in the steady state. It can be found that a firm will obtain more instantaneous profit in the steady state of the totally cooperative game than that of the non-cooperative game, which emphasizes the importance of coordinating strategies. The effects of the complementarity degree and industry size on the instantaneous profits in the steady state are also obtained through the numerical experiment results.     

Bilateral information sharing in two supply chains with complementary products

Information sharing has been regarded as a major way to promote collaboration or to optimize overall supply chain performance. Most of the literature has focused on unilateral information sharing in a supply chain with single or substitutable products. This paper investigates bilateral information sharing in two supply chains with complementary products, and formulates four decision models based on different information sharing patterns. Our results show that (i) information sharing always benefits the manufacturer, and benefits the retailer and the whole supply chain under certain conditions; (ii) information sharing increases/decreases the positive effect of the retailer’s/manufacturer’s forecast on the optimal pricing strategies in its own supply chain; however, its impact depends on the parameter conditions in the other complementary supply chain.     

Asset pricing under ambiguous information: an empirical game-theoretic analysis

In a representative agent model, the behavior of a social system is described in terms of a single aggregate decision maker. Such models are popular in economic and finance research, largely due to their analytic tractability, but fail to account for real-world agent heterogeneity, and may ignore effects of market microstructure. Agent-based simulation models naturally incorporate agent heterogeneity, and can account for any particular market microstructure; however, such models have gained only limited acceptance by the mainstream economic research community, due to concerns over how much general insight can be gleaned from simulating a particular configuration of agent behaviors. We address such concerns by employing game-theoretic criteria in behavior selection. We present a case study investigating a recent model from the finance literature proposed by Epstein and Schneider (ES), and its ability to explain the classic equity premium puzzle in risky asset pricing. For all market configurations that we examined, ambiguity-averse pricing was played with little or no probability in equilibrium. Moreover, none of the market configurations exhibited significant equity premia. Both our use of strategic equilibrium as a market composition concept, and the actions of our simulated market microstructure contribute to removing any equity premium. These findings underscore the value of checking that results from abstract representative-agent models are supportable in a higher-fidelity model where heterogeneity and strategic interactions are taken into account.     

Empirical analysis on risk of security investment

The paper analyzes the theory and application of Markowitz Mean-Variance Model and CAPM model. Firstly, it explains the development process and standpoints of two models and deduces the whole process in detail. Then 30 stocks are choosen from Shangzheng 50 stocks and are testified whether the prices of Shanghai stocks conform to the two models. With the technique of time series and panel data analysis, the research on the stock risk and effective portfolio by ORIGIN and MATLAB software is conducted. The result shows that Shanghai stock market conforms to Markowitz Mean-Variance Model to a certain extent and can give investors reliable suggestion to gain higher return, but there is no positive relation between system risk and profit ratio and CAPM doesn＇t function well in China＇s security market.     

A model of interim information sharing under incomplete information

We propose a two-person game-theoretical model to study information sharing decisions at an interim stage when information is incomplete. The two agents have pieces of private information about the state of nature, and that information is improved by combining the pieces. Agents are both senders and receivers of information. There is an institutional arrangement that fixes a transfer of wealth from an agent who lies about her private information. In our model, we show that (1) there is a positive relation between information revelation and the amount of the transfers, and (2) information revelation has a collective action structure, in particular, the incentives of an agent to reveal decrease with respect to the amount of information disclosed by the other.     

Interactions between investment timing and management effort under asymmetric information: Costs and benefits of privatized firms

In this paper, we examine the interactions between investment timing and management effort in the presence of asymmetric information between the owner and the manager where the manager has an informational advantage. We find that investment timing is later under asymmetric information than under full information, implying a decrease in the value of equity option. However, in order to minimize any distortion under underinvestment, management effort is greater under asymmetric information than under full information. We show that there are trade-offs in the efficiencies of investment timing and management effort under asymmetric information. These results fit well with the findings of past empirical studies concerning the costs and benefits of privatized firms.     

A game-theoretic analysis of the political structure of the Netherlands Antilles

This paper uses apportionment methods and game theory to analyze the political structure of the Netherlands Antilles both before and after Arubas Status Aparte. A comparison is made among the islands of the position of a voter on each island with respect to representation and voting power.     

Coalition formation of oligopolistic firms for information exchange

This paper investigates the coalition formation of oligopolistic firms for exchanges of information about their cost functions in a game-theoretical framework. An oligopolistic market under uncertainty is considered in which each firm knows its own cost function but not those of all the others. The following results are shown. It is profitable for each firm to exchange the information about cost functions with other firms. When the uncertainty levels of the cost functions of all firms are symmetric. it is common interest for them to exchange their information by forming the grand coalition. On the other hand, when their uncertainty levels are highly asymmetric, firms possessing less uncertain cost functions come into conflict with one another when exchanging information exclusively with the most uncertain firms. As a result, more than one coalition may be formed among firms.     

A game-theoretic model of reinsurance

We define a game between the insured and the insurer by which one can justify the choice of the discount function from the insurance premium payment as a function of the deductible. We find conditions that make it possible to conclude a contract using the deductible amount. We define a game between the insurer and the reinsurer in which the insurer chooses the loss-ratio limit and the reinsurer the price of the reinsurance policy. We seek a Stackelberg equilibrium with the reinsurer in the role of leader. Translated fromMetody Matematicheskogo Modelirovaniya, 1998, pp. 160–164.     

Rivalry and uncertainty in complementary investments with dynamic market sharing

We study the effects of revenue and investment cost uncertainty, as well non-preemption duopoly competition, on the timing of investments in two complementary inputs, where either spillover-knowledge is allowed or proprietary-knowledge holds. We find that the ex-ante and ex-post revenue market shares play a very important role in firms’ behavior. When competition is considered, the leader’s behavior departs from that of the monopolist firm of Smith (Ind Corp Change 14:639–650, 2005). The leader is justified in following the conventional wisdom (i.e., synchronous investments are more likely), whereas, the follower’s behavior departs from that of the conventional wisdom (i.e., asynchronous investments are more likely).     

A game-theoretic taxonomy of social dilemmas

Both social psychology and experimental economics empirically investigate social dilemmas. However, these two disciplines sometimes use different notions for very similar scenarios. While it is irrelevant for economists whether an experimental public-good game is conceptualised as a take-some or give-some game – i.e., whether something is conceptualised as produced or extracted – it is not irrelevant for some psychologists: they grasp public-goods games as “give-some” games. And whereas most economists define social dilemmas in reference to a taxonomy of goods, some psychologists think that dominant strategies are a necessary attribute. This paper presents a taxonomy that relies on a formal game-theoretic analysis of social dilemmas, which integrates and clarifies both approaches. Because this taxonomy focuses on the underlying incentive structure, it facilitates the evaluation of experimental results from both social psychology and experimental economics.     

Theoretical aspects of information security

In this work, the authors obtain a topological classification of the simplest diffeomorphisms of the sphere S ² having exactly one orbit of one-sided heteroclinic tangency. Translated from Sovremennaya Matematika i Ee Prilozheniya (Contemporary Mathematics and Its Applications), Vol. 54, Suzdal Conference–2006, Part 2, 2008.     

A simple model of corporate international investment under incomplete information and taxes

This paper extends the theory of corporate international investment in Choi (J. Int. Bus. Stud. 20: 145–155, 1989) in an environment where the segmentation of international capital markets for investors or the presence of agency costs provide some independence to corporate decisions. The model shows that the real exchange risk, the competition between firms in different markets and diversification gains affect corporate international investment. By accounting for the role of information as defined in the models of Merton (J. Finance 42: 483–510, 1987), Bellalah (Int. J. Finance Econ. 6: 59–67, 2001a) and Bellalah and Wu (Int. J. Theor. Appl. Finance 5(5): 479–495, 2002), the model embodies different existing explanations based on economic and behavioral variables. We show in a “two-country” firm model that real exchange risk, diversification motives and information costs are important elements in the determination of corporate international investment decisions. The dynamic portfolio model reflects the main results in several theories of foreign direct investment. Our model accounts for the role of information in explaining foreign investments. It provides simple explanations which are useful in explaining the home bias puzzle in international finance. Using the dynamical programming principle method, we provide the general solution for the proportion of firm’s total capital budget. We also use a new method to get explicit solutions in some special cases. This new method can be applied to solve other financial control problems. The simulating results are given to show our conclusion and the influence of some parameters to the optimal solution. The economic results can be seen as a generalization of the model in Solnik (J. Econ. Theory 8: 500–524, 1974).     

Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: An update

A group of agents have claims on a resource but there is not enough of it to honor all of the claims. How should it be divided? A group of agents decide to undertake a public project that they can jointly afford. How much should each of them contribute? This essay is an update of Thomson (2003), a survey of the literature devoted to the study of such problems.     

A survey of game-theoretic models of cooperative advertising

The paper surveys the literature on cooperative advertising in marketing channels (supply chains) using game theoretic methods. During the last decade, in particular, this literature has expanded considerably and has studied static as well as dynamic settings. The survey is divided into two main parts. The first one deals with simple marketing channels having one supplier and one reseller only. The second one covers marketing channels of a more complex structure, having more than one supplier and/or reseller.     

The effect of forecasting and information sharing in SCM for multi-generation products

Proper selection of information sharing policy and forecasting method has a significant impact on supply chain performance, especially in the high-tech industry where the product life cycle is short and multiple generations of products coexist. This paper evaluates the value of information sharing with various forecasting methods where two generations of high-tech products compete with each other in the same market. We consider two market environmental factors and two supply chain factors for the Monte Carlo Simulation and find out the most ideal combination of information sharing policy and forecasting method producing the maximum profits and service level.