MIcrofinance and GAme theory: cross fertilization

A project in collaboration with Marc Labie

MIGA is a multidisciplinary project in the fields of Microfinance, mathematical modelling, and Game Theory aiming at a new theory to understand complex institutional systems and to predict the different scenarios that the microfinance sector may face in the future.

Microfinance is a young field where research still needs to be tremendously developed. Armendáriz and Labie have identified (in the introduction of The Handbook of Microfinance, 2011) five priority changes in the microfinance sector, each of them critical to its development. Understanding them requires going back and forth between modelling and experimental research investigations. Game theory, on the contrary, has a longer track record in modelling complex issues in economics but also, more recently, in the study of biological systems and in computer science.

MIGA will develop around five themes arising from the major challenges identified in microfinance: the supply and demand of products and services, the role of savings in the financial structure of microfinance institutions (MFIs), the governance of the MFIs, the competitive environment, the regulation and supervision mechanisms.

MIGA's methodology will rely on the dialogue between microfinance and game theory. Combining all the priority changes identified in microfinance is the very objective of our research programme. We will adopt a systemic approach of the field and its main limitations to systematically analyze, thanks to both behavioural and quantitative (computational) game theory, what realistic options should be considered in the wide variety of choices that microfinance has to make and, consequently, what underlying strategies should be developed by the actors in this environment. At the same time, working on a field where multiple trade-offs and balances have to be considered in order to move forward is very challenging for game theory development. Tackling the whole of these challenges requires to master both fields.