Game theory applications in finance: a review of literature

What the paper says

Purpose This paper reviews the application of game theory in finance, focusing on its role in modeling strategic interactions among market participants. It synthesizes classical models such as Nash equilibrium and signaling games while integrating emerging themes including behavioral finance, sustainability-linked decisions, decentralized finance (DeFi) and artificial intelligence (AI)-driven agents. The study aims to highlight how game-theoretic frameworks inform financial decision-making, market design and governance and to identify conceptual gaps and future research directions. Design/methodology/approach The study employs a systematic literature review following the Preferred Reporting Items for Systematic Reviews and Meta-Analyses protocol, complemented by bibliometric mapping using VOSviewer. It analyzes 78 peer-reviewed articles published between 2000 and 2025 across five finance domains: asset pricing, corporate finance, investment strategies, financial markets and behavioral finance. Conceptual frameworks and taxonomies are developed to categorize game-theoretic models by strategic orientation and information structure, offering a structured synthesis of theoretical advancements and practical applications. Findings Game theory enhances understanding of strategic behavior in finance, particularly under conditions of asymmetric information and market complexity. Key findings include the relevance of signaling games in initial public offerings pricing, repeated games in environmental, social and governance commitments and mechanism design in DeFi governance. The review identifies gaps in behavioral integration, empirical validation and modeling of decentralized ecosystems. It proposes future research directions involving multi-agent learning, adaptive mechanism design and sustainability-linked financial strategies. Research limitations/implications The review is limited by its focus on published literature and may exclude emerging models in unpublished or proprietary research. Empirical validation of proposed frameworks remains a future research priority. Practical implications The paper offers actionable insights for regulators, investors and policymakers by applying game-theoretic tools to systemic risk management, portfolio allocation and financial regulation in digitized markets. Originality/value This study provides a novel synthesis of game theory’s evolution in finance, introducing conceptual frameworks that integrate behavioral, technological and sustainability-linked dimensions.