Proactivity and Retroactivity of Firms and Information Sharing of Hackers

Abstract

One firm defends proactively or retroactively against a first hacker, and thereafter against a second hacker, in four four-period games. The hackers share information for financial gain, mutual advantage, and reputation. The first hacker’s attack and information sharing are strategic substitutes. When the firm is proactive in period 1, the first hacker’s information sharing decreases as the second hacker’s attack cost increases. The deterring effort in eight corner solutions is proportional to the deterred player’s valuation and inverse proportional to the deterred player’s unit effort cost. When the first hacker exerts higher effort and shares more information, lower defense by the firm is sufficient to deter the second hacker. When the firm is deterred by the first hacker, the first hacker attacks less and shares more information than in the interior solution. For the first hacker and the firm, both players commonly prefer the disadvantaged player to move first. The exception is that the firm prefers to deter the first disadvantaged hacker when the two hackers benefit substantially from information sharing, reputation gain, or the second player is advantaged. The results contrast with the literature where the advantaged player commonly prefers to move first, with conflicting sequence preferences.