Product Overview

A credit-card company must value portfolios of customers based on their future earnings. The payment characteristics of customers serve to classify them into states. This case can be the basis for discussing state dynamics over time in a Markov process.

Learning Objectives

The case provides a context for comparing customer sets with differing initial state distributions, transition matrices, and payoff characteristics. Students can gain an understanding of how portfolios that look good in the present may not be favorable in the long term. In addition, students will see how changing transition probabilities can affect the steady-state distributions.