For those of you who do not know, the Federal Reserve branches (the head ones for each district) all conduct and publish research and facts on their respective webpages. The Kansas City Fed is one of my favorite places to go to look for current (and historical) research that is relevant to our industry. Last month they released a summary from the 2015 International Payments Policy Conference which included a session on applying Game Theory to payment security.
I’m fascinated by game theory. It’s an area of applied mathematics where even someone like me (who is NOT a math whiz) can grasp. The primary models they applied appear to focus on the EMV liability shift to examine payoffs and equilibria before and after October 1. One key finding, as with many games, is that the parties in the game may not benefit equally, or one party may be worse off than another.
Through game theory, we can model behaviors of rational players to try and understand how people will react to changes in the payment security landscape. The key takeaway from this session from the report was that better and more uniform participation will come from an equal distribution of costs and benefits in the payment security ecosystem.