A game theoretical look at fidentity

By 10.03.2017Blog
Disclosing your identity is something people usually don’t do when they are online. The reason is that you can be burnt badly, if you do. Modeling this as a game shows how rational your behavior is and how it leads to a sub-optimal overall outcome:
Player 1 / Player 2
disclose
hide
disclose
10/10
-10/10
hide
10/-10
0/0
The best outcome for both of you is disclosing who you are. Both parties can now trust each other and transact. However, if one side choses to disclose and the other does not, the disclosing party might be burned badly by a fraudster hiding in anonymity. Due to this risk, both sides – even though they are legitimate almost always – chose to hide their identities, which leads to sub-optimal outcomes where transactions have to be carried out without trust.
Now look at using fidentity. We remove the risk of getting burned due do disclosure to a fraudster:
Player 1 / Player 2
fidentity
hide
fidentity
10/10
5/10
hide
10/5
0/0
Now the incentives are reversed. Instead of having a driving force of individual incentives which leads to the (0/0) outcome, now, using fidentity always is superior to not using it. Each individual can gain by proving to the other side that they are trusted individuals. This dynamic drives the interaction to the (10/10) outcome where both entities can transact in a trusted way without running the risk of getting burned.

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