Game theory banking industry

By eliminating the choices that Player 2 will not choose, we can narrow down our tree. In this way, we will bold the lines that maximize the player's payoff at the given information set. After this reduction, Player 1 can maximize its payoffs now that Player 2's choices are made known. The result is an equilibrium found by backward induction of Player 1 choosing "right" and Player 2 choosing "up.

For example, one could easily set up a game similar to the one above using companies as the players. This game could include product release scenarios. If Company 1 wanted to release a product, what might Company 2 do in response?

Will Company 2 release a similar competing product? By forecasting sales of this new product in different scenarios, we can set up a game to predict how events might unfold. Below is an example of how one might model such a game. By using simple methods of game theory, we can solve for what would be a confusing array of outcomes in a real-world situation. Using game theory as a tool for financial analysis can be very helpful in sorting out potentially messy real-world situations, from mergers to product releases.

Stanford Encyclopedia of Philosophy. Behavioral Economics. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice.

Popular Courses. Table of Contents Expand. Game Theory Definitions. Assumptions in Game Theory. Backwards Induction.

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Compare Accounts. The implication is that mutual trust seems to reduce the perception of risk in the market while bank opportunism significantly escalates perceived risk. The analyses also show that when the corporate customer trusts the bank, perceived risk is significantly reduced. Despite the fact that inter-organizational trust is a crucial dyadic variable, few empirical studies have previously analyzed both sides of the relationship. This investigation is a preliminary analysis of how both sides of the same relationship affects the outcome.

When trust erodes from one side of the relationship, it may lead to the same process on the other side of the relationship. The authors have contributed equally to this paper. The authors acknowledge the comments and critics from the editor and two anonymous reviewers.

Dahlstrom, R. Ulvnes, A. A game theory approach to empirical analyses of bank and corporate customer relationships", International Journal of Bank Marketing , Vol. Emerald Group Publishing Limited. Report bugs here. Please share your general feedback. You can join in the discussion by joining the community or logging in here.

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