Some Strategic Decision Problems in Networks
19 Pages Posted: 8 Jun 2020
Date Written: May 1, 2020
The following analysis demonstrates that network efficiency is a very delicate matter. Neither the restriction to suitable core-subnets, nor intelligent enlargements guarantee efficient results in any case. For instance, the numerical example in Myerson (1977) contains a prisoners’ dilemma situation for some agents in the network. Of course, the outcome is inefficient from the perspective of these players – but not for the unrestricted network. Breass’ paradox shows that the enlargement of a network can lead to an inefficient outcome in the Nash equilibrium even if all players are taken into consideration. Restricting the network can create a Pareto efficient outcome. A third model discusses the strategic problem of a cyber network attack in the form of an inspection game. From the defender’s point of view, the question arises which nodes of the network are essential attack targets and thus need special security attention. In principle two types of nodes are critical: important ones and unimportant ones. Important nodes, as they connect to many other essential nodes and are therefore suitable multipliers for network malware and information capture, and unimportant nodes, from the attacker’s point of view, which are, in general, not in the focus of security attention, such that infiltration via them may be undetected for a long time.
Keywords: network, game form, Nash equilibrium, Braess paradox, inspection game, prisoners’ dilemma
JEL Classification: C70, C72, D72, D85, L14, Z13
Suggested Citation: Suggested Citation