Game of information security investment

TL;DR: It is demonstrated that the optimal security investment level of an interconnected firm against targeted attacks is different from that against opportunistic attacks, and shows that not all information security risks are worth fighting against.

Abstract: We model an interconnected firm's security investment against two attack types.A high network vulnerability spurs firms to invest less in information security.Liability and security information sharing can motivate firm to invest in security.Both incentives can improve firms' security level and decrease firms' total costs.Both incentives can be extended to the case of three or more firms. The level of firms' information security investment has recently become a critical issue in the management of IT infrastructure. Prior studies have not considered attack types and firms interconnection simultaneously when investigating the optimisation of such investment. Using game theory, we demonstrate that the optimal security investment level of an interconnected firm against targeted attacks is different from that against opportunistic attacks. Our model shows that not all information security risks are worth fighting against. As the potential loss increases, it is unadvisable to increase the security investment proportionately. Firms should increase investments with intrinsic vulnerability when facing target attacks, but focus on those systems that fall into the midrange of intrinsic vulnerability when facing opportunistic attacks. Firms are unwilling to invest in security and often offload reliability problems onto others when the trusted interdependence relationship becomes tighter in the absence of economic incentives. Thus we also discuss two economic incentives to motivate firms: liability and security information sharing. We find that if the rules are set properly, both economic incentives are effective to not only internalise the negative externality and improve a firm's security level, but also reduce the total expected cost. We show that firms' optimal investments of liability always increase with the increasing number of firms, but the optimal investments on security information sharing increase only when the number of firms is large enough. These insights draw attention to many trade-offs firms often face and the importance of accurate assessment of firms' security environment. Future research directions are discussed based on the limitations and possible extensions of this study.