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A game theory model of cybersecurity investments with information asymmetry

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  • Anna Nagurney
  • Ladimer Nagurney

Abstract

In this paper, we develop a game theory model consisting of sellers and buyers with sellers competing non-cooperatively in order to maximize their expected profits by determining their optimal product transactions as well as cybersecurity investments. The buyers reflect their preferences through the demand price functions, which depend on the product demands and on the average level of security in the marketplace. We demonstrate that the governing equilibrium conditions of this model with security information asymmetry can be formulated as a variational inequality problem. We provide qualitative properties and propose an algorithmic scheme that is easy to implement. Three sets of numerical examples are presented which reveal the impacts of the addition of buyers and sellers and a variety of changes in demand price and investment cost functions on the equilibrium product transaction and security level patterns. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Anna Nagurney & Ladimer Nagurney, 2015. "A game theory model of cybersecurity investments with information asymmetry," Netnomics, Springer, vol. 16(1), pages 127-148, August.
    • Handle: RePEc:kap:netnom:v:16:y:2015:i:1:p:127-148
    DOI: 10.1007/s11066-015-9094-7
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    References listed on IDEAS

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    1. Nagurney, Anna & Yu, Min, 2012. "Sustainable fashion supply chain management under oligopolistic competition and brand differentiation," International Journal of Production Economics, Elsevier, vol. 135(2), pages 532-540.
    2. Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-249, March-May.
    3. Kjell Hausken, 2006. "Returns to information security investment: The effect of alternative information security breach functions on optimal investment and sensitivity to vulnerability," Information Systems Frontiers, Springer, vol. 8(5), pages 338-349, December.
    4. Dafermos, Stella & Nagurney, Anna, 1987. "Oligopolistic and competitive behavior of spatially separated markets," Regional Science and Urban Economics, Elsevier, vol. 17(2), pages 245-254.
    5. Anna Nagurney & Dong Li & Tilman Wolf & Sara Saberi, 2013. "A network economic game theory model of a service-oriented internet with choices and quality competition," Netnomics, Springer, vol. 14(1), pages 1-25, November.
    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    7. Anna Nagurney & Dong Li, 2014. "Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards," Computational Management Science, Springer, vol. 11(3), pages 285-315, July.
    8. Anna Nagurney & Min Yu & Qiang Qiang, 2011. "Supply chain network design for critical needs with outsourcing," Papers in Regional Science, Wiley Blackwell, vol. 90(1), pages 123-142, March.
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    Cited by:

    1. Mazaher Kianpour & Stewart J. Kowalski & Harald Øverby, 2021. "Systematically Understanding Cybersecurity Economics: A Survey," Sustainability, MDPI, vol. 13(24), pages 1-28, December.
    2. Alessandro Fedele & Cristian Roner, 2022. "Dangerous games: A literature review on cybersecurity investments," Journal of Economic Surveys, Wiley Blackwell, vol. 36(1), pages 157-187, February.
    3. Nagurney, Anna & Shukla, Shivani, 2017. "Multifirm models of cybersecurity investment competition vs. cooperation and network vulnerability," European Journal of Operational Research, Elsevier, vol. 260(2), pages 588-600.

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