Ranking Quantilized Mean-Field Games with an Application to Early-Stage Venture Investments

TL;DR

This paper introduces quantilized mean-field game models focusing on ranking agents by their terminal states relative to a population quantile, providing solutions and an application to early-stage venture investments.

Contribution

It develops analytic and semi-explicit solutions for quantilized mean-field games with ranking criteria and applies these models to venture capital investment strategies.

Findings

Analytic solution for target-based formulation with $ extit{ extepsilon}$-Nash property.

Semi-explicit solution for threshold-based formulation.

Numerical experiments show target-based approximation effectiveness.

Abstract

Quantilized mean-field game models involve quantiles of the population's distribution. We study a class of such games with a capacity for ranking games, where the performance of each agent is evaluated based on its terminal state relative to the population's $\alpha$-quantile value, $\alpha \in (0,1)$. This evaluation criterion is designed to select the top $(1-\alpha)\%$ performing agents. We provide two formulations for this competition: a target-based formulation and a threshold-based formulation. In the former and latter formulations, to satisfy the selection condition, each agent aims for its terminal state to be \textit{exactly} equal and \textit{at least} equal to the population's $\alpha$-quantile value, respectively. For the target-based formulation, we obtain an analytic solution and demonstrate the $\epsilon$-Nash property for the asymptotic best-response strategies in the $N$-player game. Specifically, the quantilized mean-field consistency condition is expressed as a set of forward-backward ordinary differential equations, characterizing the $\alpha$-quantile value at equilibrium. For the threshold-based formulation, we obtain a semi-explicit solution and numerically solve the resulting quantilized mean-field consistency condition. Subsequently, we propose a new application in the context of early-stage venture investments, where a venture capital firm financially supports a group of start-up companies engaged in a competition over a finite time horizon, with the goal of selecting a percentage of top-ranking ones to receive the next round of funding at the end of the time horizon. We present the results and interpretations of numerical experiments for both formulations discussed in this context and show that the target-based formulation provides a very good approximation for the threshold-based formulation.