Dynamic incentives for risk management

Abstract

Incentives play an important role in assessment and mitigation of operational risks in large-scale organisations with multiple autonomous divisions. This paper presents a game-theoretic approach to optimisation of resources for mitigating security and technology-related risks. In the large-scale organisations considered, the risk manager plays a motivator role and provides assistance or subsidies to divisions, which are modelled as selfish players of a strategic (noncooperative) game. It is assumed that neither the risk manager nor divisions have complete information on the results of their investments, and they learn them 'a posteriori'. Dynamic incentive schemes are presented which achieve..