John R Birge | Searcharxiv

arXiv2026

Mechanism Design for Decentralized Risk Detection: Strict Propriety, Network Coalitions, and the Backfiring Mandat

Competing firms that share a population of risky customers face a decentralized risk detection problem in which each firm holds fragmentary information whose aggregation would generate social value, but private incentives impede truthful sharing. We develop a dynamic mechanism design framework for this setting and identify three strategic frictions that distinguish it from classical mechanism design with decentralized information: compliance moral hazard, adversarial adaptation, and information destruction through intervention. A temporal value assignment (TVA) mechanism credits firms using a strictly proper scoring rule applied to discounted verified outcomes; under stated assumptions, TVA implements truthful posterior reporting as a Bayes--Nash equilibrium (uniquely optimal at each edge in large federations, with $O(1/m)$ shading in finite systems). A network Shapley characterization shows that under edge-additive coalition value, each firm's marginal contribution is proportional to its weighted cross-firm interaction degree, yielding a sharp prescription for coalition design that prioritizes inter-firm volume over firm size. Embedding TVA in a model of competition among firms, we establish a welfare ordering across four regulatory regimes (autarky, voluntary federation, mandated full sharing, TVA) and identify conditions under which information-sharing mandates without compatible incentive design reduce welfare below autarky: a ``backfiring mandate.'' We illustrate the framework on a 1.4M-transaction synthetic anti-money-laundering benchmark; the same machinery extends to platform fraud, cybersecurity threat intelligence, and supply chain risk detection.

cs.GT↗

arXiv2025

Networked Markets, Fragmented Data: Adaptive Graph Learning for Customer Risk Analytics and Policy Design

Financial institutions face escalating challenges in identifying high-risk customer behaviors within massive transaction networks, where fraudulent activities exploit market fragmentation and institutional boundaries. We address three fundamental problems in customer risk analytics: data silos preventing holistic relationship assessment, extreme behavioral class imbalance, and suboptimal customer intervention strategies that fail to balance compliance costs with relationship value. We develop an integrated customer intelligence framework combining federated learning, relational network analysis, and adaptive targeting policies. Our federated graph neural network enables collaborative behavior modeling across competing institutions without compromising proprietary customer data, using privacy-preserving embeddings to capture cross-market relational patterns. We introduce cross-bank Personalized PageRank to identify coordinated behavioral clusters providing interpretable customer network segmentation for risk managers. A hierarchical reinforcement learning mechanism optimizes dynamic intervention targeting, calibrating escalation policies to maximize prevention value while minimizing customer friction and operational costs. Analyzing 1.4 million customer transactions across seven markets, our approach reduces false positive and false negative rates to 4.64% and 11.07%, substantially outperforming single-institution models. The framework prevents 79.25% of potential losses versus 49.41% under fixed-rule policies, with optimal market-specific targeting thresholds reflecting heterogeneous customer base characteristics. These findings demonstrate that federated customer analytics materially improve both risk management effectiveness and customer relationship outcomes in networked competitive markets.

cs.CE↗