A game-theoretic model for the classification of selected oil companies’ price changes

Abstract

One of the essential properties of a machine learning model is to be able to capture nuanced connections within data. This ability can be enhanced by considering alternative solution concepts, such as those offered by game theory. In this article, the Nash equilibrium is used as a solution concept to estimate probit parameters for the binary classification problem. A non-cooperative game is proposed in which data variables are players that attempt to maximize their marginal contribution to the log-likelihood function. A differential evolution algorithm is adapted to solve the proposed game. The new method is used to study the price changes of the Romanian oil company, OMV Petrom SA Romania, relative to the price of oil (crude and Brent) and the evolution of two other major oil companies with influence in the region. Results show that the proposed method outperforms the baseline probit and classical classification approaches in predicting price changes.