Research on Consumer Credit with Game Theory:

Transcription

1 Canadan Socal Scence Vol.2 No.4 December 2006 Research on Consumer Credt wth Game Theory: a Case of Chna s Consumer Credt RECHERCHES SUR LA CONSOATION A CREDIT AVEC LA THEORIE DU JEU : UN CAS PARTICULIER DE LA CONSOATION A CREDIT EN CHINE Guo Lfu 1 Chen Gang 2 Wang Yue 3 Abstract: Ths artcle ntroduces the development of Chna s consumer credt, and analyses consumer credt behavors wth three game theory models, ncludng fundamental game theory model of consumer credt behavor, mprovement game theory model and repeated game model. Though analyzng these models, the artcle obtans the operatng mechansm of consumer credt, and comes to concluson that the complete sharng of consumer credt nformaton n socety s the techncal support to develop consumer credt, and buldng Personal Credt Informaton anagement System as soon as possble s the most urgent affar to the development of Chna s consumer credt now. Key words: consumer credt, game theory, consumer credt nformaton Résumé: L artcle présente le développement de la consommaton à crédt de la Chne et analyse les comportements de consommaton à crédt avec tros modèles de la théore du jeu, à savor le modèle de la théore du jeu fondamental, le modèle de la théore du jeu améloré et le modèle de la théore du jeu répété. A travers l analyse de ces tros modèles, l auteur trouve le mécansme opératore de la consommaton à crédt et tre la concluson que le partage des nformatons sur la consommaton à cédt dans la socété consttue le support technque du développement de cette consommaton et que l établssement du Système de anagement de l Informaton sur le Crédt personnel le plus vte possble est l affare la plus urgente dans le développement de la consommaton à crédt de la Chne. ots-clés: consommaton à crédt, théore du jeu, nformaton sur la consommaton à crédt 1.INTRODUCTION The goal of the economc system reform of Chna s to set up the socalst market economy wth Chnese characterstcs. arket economy s an economc system that market s the man way to dstrbute the socal resource. arket economy s a knd of contract economy, and credt s ts foundaton. So, t becomes an mportant stage n the economc system reform course of Chna that settng up a socal envronment of stressng credt. The credt envronment n the range of the whole socety ncludes the contents of three respects: Publc Credt, or call t the Government Credt, Busness Credt and Personal/Consumer Credt. Personal credt consumpton s one of the concrete expresson forms of Consumer Credt. It development wll promote the development of Consumer Credt further, and wll be favorable to the buldng-up work of the credt envronment of the whole socety too. At the same tme, the consumer market of Chna transformed seller's market from buyer's market from the second half of 1996, the economy of Chna has been facng the 1 Research Center of Tech-Economcs anagement, Jln Unversty, Chna. 2 School of anagement, Jln Unversty, Chna. 3 School of anagement, Unversty of Scence and Technology Bejng, Chna. *Receved 22 October 2006 ; accepted 27 November

2 Guo Lfu, Chen Gang, Wang Yue/Canadan Socal Scence Vol.2 No problem that the effectve demand s nsuffcent. Ths has nfluenced the development of natonal economy to a certan extent. Personal credt consumpton whch can transfer future consumpton nto mmedate consumpton wll mprove the mmedate consumpton demand, and expand the mmedate consumer market, and stmulate mmedate economc development. Personal credt consumpton has a hstory of more than 100 years n the West, and Chna s modern consumer credt began n 1987, sgned by the housng mortgage loan of Chna Constructon Bank. Although Chna s consumer credt has ganed a great development, and there have been all knds of credt facltes for consumer n the market, but the development level of Chna s personal credt consumpton s stll low. In developed countres, personal credt loan s a man revenue source to commercal banks, but n Chna s commercal banks, the personal credt loan s one percent of ther total loan, and the revenue from the personal credt s much lower than those commercal banks n developed countres. At present, the man personal credt facltes are stll only lmted to Personal Housng Loan, Personal Automoble Consumpton Loan, Educaton Loan, and Daly Consumpton Loan n Chna, even f credt card, rely manly on debtng to type credt card (the real credt card s a rememberng type credt card of the loan). Personal credt consumpton doesn t popularze and get extensve development yet n Chna. Under the background, t s necessary to research the operatng mechansm of consumer credt behavor. Based on the research, we can fnd the key factor n the whole process of the behavor, and make a theoretcal foundaton for the development of the consumer credt. The research s useful to buld a healthy personal consumpton credt system for Chna. 2.ETHODOLOGY Game Theory s a tool whch s used to research the decson and the equlbrum, when the decson makers behavors affect drectly each other. For example, when a person s or a company s choce s affected by another person s or another company s choce, and the choce can also affect other s, Game Theory can be used to study the decson and equlbrum. So, Game Theory can also be called Theory of Games. In consumer credt actvtes, the consumer apples the credt loan to the commercal bank. Accordng to the consumer s credt nvestgaton nformaton, the commercal bank makes decsons that whether gve agreement or not, and how much loan would be gven. Once the consumer gets the loan, he would pay off n the prescrptve tme, or not pay off. Ths process s a game between the commercal bank and the consumer n substance. We can use game theory to study what the commercal bank and the consumer would do n order to get maxmum ncome n the process under dfferent condtons. 3. GAE THEORY ODEL OF CONSUER CREDIT BEHAVIOR Let ( >0) s the credt faclty that the commercal bank gves the consumer n th r tme; s r R the load nterest (0< <1); s the rate of return on. In most condtons, R s bgger than r. 3.1 Fundamental Game Theory odel of Consumer Credt Behavor Accordng to the actons of the players and ther payoff n the game, we can gve the Payoff atrx of the consumer and the commercal bank n some credt actvty (see Fg.1). If the commercal bank chooses agree, the consumer wll get ( R r ) ncome when hs choce s fulfllng agreement or get ncome when hs choce s Volatng agreement. The consumer s best response s volatng agreement, when the commercal chooses agree. If the commercal chooses refuse, the consumer wll get zero no matter what he may do. Correspondngly, f the consumer chooses Performng agreement, the commercal bank wll get r ncome when ts choce s agree or get zero when ts choce s refuse. Obvously, n one shot game, the players wll act accordng to the prncple of maxmzng respectve nterest, and the Nash equlbrum of the game s (refuse, volatng agreement). 68

3 Guo Lfu, Chen Gang, Wang Yue/Canadan Socal Scence Vol.2 No Fg. 1 Fundamental Game Theory odel of Consumer Credt behavor 3.2 Improvement Game Theory odel of Consumer Credt Behavor The substance of consumer credt s a knd of lendng behavor on the foundaton of contract, and ths knd of contract s protected by the laws n our modern socety. The consumer s volatng agreement s a knd of behavor aganst the laws, and he would get punshment more than the ncome of volatng agreement. We suppose that the commercal would prosecute when the consumer broke the agreement. N s the consumer s punshment of the breach of the agreement about n th tme; n s the ndemnty that the consumer gves the commercal bank; C s the commercal bank s ltgaton expense. We can get the game tree of the game n Fg. 2. Fg. 2 Improvement Game Theory odel of Consumer Credt Behavor We use backward nducton to solve the game. (1) r + n C > From the game tree, the commercal bank s best acton s prosecuton n the thrd stage (the commercal bank s second choce). In the second stage, the consumer knows that f he chooses volatng agreement, the commercal bank wll choose prosecuton n the thrd stage, so the consumer s best acton s fulfllng agreement n the second stage. In the same, the commercal bank s best acton s agree n the frst stage. Then, we can get the dynamc game s sub-game perfect Nash equlbrum (agree, fulfll agreement), and the plays payoff s ( R r ), r ). ( (2) r + n C < As the same deducton as (1), n the case, (refuse, volatng agreement) s the game s sub-game perfect Nash equlbrum, the players payoff s (0, 0). From the game model, f the ltgaton expense s too hgh, the commercal bank s best acton wll be non-prosecuton, and the game s result s the same as the frst model, and the consumer credt also can t crculate. 3.3 Repeated Game odel of Consumer Credt Behavor Actually, a consumer could not apply the credt faclty only one tme n hs whole lfetme, but a lot of tmes. So 69

4 Guo Lfu, Chen Gang, Wang Yue/Canadan Socal Scence Vol.2 No the game s a repeated game between the consumer and the commercal bank. We can see the game n Fg 3. CB----the commercal bank C------the consumer A------agree R------refuse F------fulfll agreement V------volate agreement Fg. 3 Repeated Game odel of the Consumer Credt We suppose that the consumer apply the loan for the commercal bank n tmes, and then the game s a repeated game. We use backward nducton to draw a concluson that the consumer chooses volatng agreement every tme, and the commercal chooses refuse every tme. It s the so-called Chan Store Paradox. The unque soluton of Chan Store Paradox s to master the concept of ncomplete nformaton. If the nformaton s ncomplete and the repeated game has lmted tmes, the game wll have dfferent equlbrum wth one shot game. Supposng the game repeats many tmes, and the players have enough patence, (agree, fulfllng agreement) s a sub-game perfect Nash equlbrum of the game. Because the repeated game has not the last stage, we can not solve the game by backward nducton. In the process of the repeated game, we let δ dscount factor. If the consumer chooses volatng agreement n some stage of the game, he wll get ncome and R net ncome. If the game satsfes the R followng condton: and δ 1 R 1 δ If δ 1 R, n the game between the consumer and the commercal, the commercal bank wll agree the consumer s apply, and the consumer would fulfll the agreement. (fulfllng agreement, agree) s a sub-game perfect Nash equlbrum. B But n the repeated game between the consumer and the commercal bank, the consumer s later apples wll be refused by the commercal bank because of hs volatng agreement at one tme. And the amount of load ncreases n drect proporton to the tmes of the fulfllng agreement, so the consumer s losses are not n ( n ) ( R r ), but t+ 1( Rt rt ) t= ( = 1, L, n ; t+1 t ).Then, because the long-range benefts are more than the present benefts, the consumer wll choose fulfllng agreement under the drve of ratonal maxmum self s benefts n the repeated game, and the players wll choose the (fulfllng agreement, agree) strateges. At last, the game attans Pareto Domnance, and the payoff of the players s ( R r ), r ). ( 3.4 The mportance of sharng consumer credt nformaton completely The mprovement game model or the repeated game model s based on the complete sharng of consumer credt nformaton. Contrarly, wthout the sharng of the nformaton, the measures n the later two models wouldn t be carred out easly. In order to ncrease the possblty of the loan on credt and obtan more, credt applcants mght fll n some false consumer nformaton. oreover judgng the consumer nformaton true or not s dffcult, for example, consumer propertes, because the commercal bank has not enough true nformaton about t. At one tme, because of the lmtaton of punshment dynamcs n law, these people who broke promse could not be punshed n law. As a result, the cost prce of the volatng agreement behavor s lttle n practcal lfe, and the probablty of consumer volatng agreement behavor wll ncrease. In addton, f consumer credt nformaton sn t completely shared among the commercal banks, the consumer s behavor of the volatng agreement behavor n one bank wll not be known by other banks. After he gets credt faclty from one bank, he wll break the contract, and then he wll contnue applyng to the credt from other banks. So the sum that he has got all of the credt from the banks maybe s larger than the ncome of the credt n all of hs lfe. Therefore, consumer credt nformaton beng fully shared n whole socety, at lease n all of commercal banks, s the most mportant techncal support to the development of consumer credt. It makes the fnte game between a consumer and a commercal bank nto the nfnte game between the consumer and all of commercal banks. Based on the transformaton, the credt consumpton can get a safety support and develop stably. Furthermore, sharng consumer credt nformaton completely s a complementartes and extenson of law punshment for the volatng 70

5 Guo Lfu, Chen Gang, Wang Yue/Canadan Socal Scence Vol.2 No agreement behavor. To a greater degree, sharng consumer credt nformaton completely n whole socety can heghten the punshment s ntensty to the consumer who broke the contract. If a consumer broke the contract after contractng wth commercal bank, the bank could get the nformaton from PCIS, and other banks can obtan hs nformaton though the system later. Then, hs credt grade n other banks wll be reduced, and he wll be gven less, or even be refused n future. At the same tme, the open system can afford the reference for the people. The people wll know the consumer s record of volatng agreement. Thus, consumers that have the record of volatng agreement wll not be awarded the credt. Ths lesson even s more than law punshment. 4. CONCLUSION From the above analyss, we can see that the essental of consumer credt actvtes s a knd of games between commercal banks and consumers, and the most mportant condton to guarantee each player s to maxmze ther own revenue, s the personal credt nformaton beng shared completely n whole socety, at least n all of commercal banks. In present Chna s personal credt consumpton market, consumers gve enough beleve to the commercal banks. On the contrary, the commercal banks are much dffcult to learn about the consumers credt statuses who apply for the bank s credt facltes, because there s not a rght channel, from whch the commercal banks can obtan enough these consumers credt nformaton wth a low cost. The proft from personal credt consumpton market s hgh, and the market possesses the capacty for growth or development, so the banks want to develop consumer credt servces certanly. But the banks have to pay more on estmatng the consumers credt grades whch can reflect the probablty of the consumer returnng the loan, because of the lack of the consumer s credt nformaton. In order to counteract the rsk, the commercal banks set a more fuzzy process for consumers to obtan the credt facltes, for example, more serve guarantee system, mortgage terms, or qualfcaton. In Chna s personal credt consumpton market, f a person wants to buy some durable consumer goods wth credt facltes, he must dsburse a large number of the frst payment, and then he must offer enough personal nformaton to a commercal bank wth a lot of document whch can reflect hs ncome, marrage, captal asserts, and so on. The process s so complex and fuzzy. The greatest obstacle of the development of Chna s consumer credt has been that there s not a rght nformaton platform, through whch the commercal banks can obtan enough personal nformaton, to sustan the consumer credt behavor s operatng healthly. The nformaton platform, whch can be called Personal Credt Informaton anagement System, can (1)obtan all knds of nformaton whch contan the credt applcant's Character, Capacty, Captal, Condton and Collateral (5C) from correlatve socal departments, especally commercal banks; (2) coordnate the nformaton; and (3) spread the nformaton n whole socety at a enough low cost. In chna, the government has the greatest capablty to dstrbute the socal resource, so the PCIS s buldng requres the man support from the government. For example, the collecton of credt nformaton relates to a lot of socal departments, and the work can only be acheved under the government s support, ncludng correlatve polces, laws, manpower, and fund. REFERENCES Zhang Weyng. (1998). Game Theory and Economcs of Informaton[]. Shangha: Shangha People s Press. Ln Junyue. (2002). Consumer Credt anagement[]. Bejng: Chna FangZheng Press. Sun Zhyng. (2002). The Economcal Analyss of Credt Problem[]. Bejng: Chna Cty Press. Watkns, John P.. Corporate power and the evoluton of consumer credt [J]. Journal of Economc 34[4]: THE AUTHORS Guo Lfu, Research Center of Tech-Economcs anagement, Jln Unversty, Changchun, Jln, , P.R. Chna. Chen Gang, School of anagement, Jln Unversty, Changchun, Jln, , P.R. Chna. E-mal: Hammer_Ch@163.com Wang Yue, School of anagement, Unversty of Scence and Technology Bejng, Bejng, , P.R. Chna. 71