A Bayesian approach to investment in innovation projects with the presence of fake innovators

Abstract

The paper proposes a game-theoretic model of interaction between investors and innovators, taking into account the existence of so-called “fake” innovators offering knowingly unprofitable projects. The model is a Bayesian non-cooperative, repetitive game with recalculated payments and partly unobservable ex interim player types. It allows quantifying the parameters of the strategy for all player types to find equilibrium solutions. The model describes rational modes for screening “fake” innovators based on adjusting players' probabilistic estimates.

Keywords

• Decisions under uncertainty
• Innovation
• Funding
• Bayesian games
• Knowledge asymmetry
• Economic development