**Sources (with links) used for this article are compiled at the bottom. These sources would also be good for further reading/research into the topic.
Every day, mortgage loan originators (MLOs) make decisions that can feel like a strategic game. Whether you’re negotiating rates with a borrower, competing with other lenders, or guiding a client through the loan process, you’re engaging in a complex dance of choices and outcomes.
Game theory, often called the science of strategy, examines how people make decisions when their success depends on others’ choices.
Really, it’s about thinking a few moves ahead. For an MLO, understanding some basics of game theory can provide fresh insights into business decisions and working with clients in a way that benefits everyone.
What Is Game Theory (and Why Should MLOs Care)?
Game theory is a framework for anticipating how interactions play out when multiple players (like you and your clients, or you and a competitor) have potentially conflicting interests. It might sound abstract, but the core idea is straightforward...
Your outcome depends not just on what you do, but on what the other person does too.
In the mortgage world, this is an everyday reality. Your client’s decisions (shopping around, being honest about finances, etc.) affect your success, and vice versa.
Why Should MLOs Care?
Because using a bit of game-theoretic thinking can help you make better decisions and build better relationships. It’s less about turning client interactions into a battle of wits and more about:
- being mindful of incentives
- Anticipating reactions
- Finding win-win outcomes
Successful loan officers often do this intuitively. They ask themselves: “If I offer this rate or advise this strategy, how will the client respond?” or “If I don’t communicate clearly, what will the client do next?” Thinking in this way is essentially game theory in action. It helps you stay one step ahead and avoid surprises.
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Zero-Sum vs. Win-Win
One key concept is the difference between zero-sum situations and non-zero-sum (or win-win) situations. In a zero-sum game, one person’s gain is exactly another person’s loss. At first glance, some parts of a mortgage deal might seem this way. For example, when negotiating an interest rate, if the borrower secures a lower rate, it could appear that the lender (or the lender’s revenue) loses out by the same amount. It’s like splitting a pie... if one slice gets bigger, the other gets smaller.
Doesn't Have to Be...
But most client relationships don’t have to be zero-sum. In fact, mortgage lending often works best as a non-zero-sum game, meaning both sides can gain. Think about it... if you provide a slightly better rate or reduce a fee to help a client, the immediate “loss” in profit might be small, but the goodwill and trust you earn can pay back dividends. The client walks away happy (they “win” with a great loan), and you “win” by closing the deal and potentially gaining referrals or repeat business. Both sides come out ahead.
Risk Souring Relationship
If instead, you treat every negotiation as a tug-of-war over who gets the better deal, you risk souring the relationship. Sure, you might squeeze out a bit more commission in one transaction, but the client may feel they lost, and an unhappy client can mean no referrals, poor reviews, or even a deal that falls apart.
Positive Sum Outcomes
Game theory encourages us to look for positive-sum outcomes, solutions where everyone benefits rather than someone winning at the other’s expense. MLOs who adopt this mindset often find that their clients are more satisfied and their own business grows in the long run.
One-Shot Deal or Long-Term Relationship?
Another game theory insight is the contrast between one-shot games and repeated games.
- A one-shot game is a one-time interaction: you do a deal with a client you’ll never see again.
- In a repeated game, the same players expect to interact multiple times.
Mortgage transactions with individual homebuyers might seem “one-shot.” People don’t get mortgages every day. But consider this... referrals, reviews, and your reputation make client interactions more like a repeated game in practice.
Each client you serve could bring you their future business (a refinance or second home purchase) and send friends and family your way if they have a good experience. In other words, even a single loan can be the start of an ongoing, trust-based relationship.
Expectation of Future Interaction
Game theory teaches that trust and cooperation thrive when there’s an expectation of future interaction. If neither side thinks they’ll ever meet again, each has an incentive to act selfishly. For example, a client might withhold information or shop other lenders behind your back, and an unscrupulous originator might oversell or hide unfavorable terms.
In a one-off scenario with no trust, both parties are defensive, and the outcome is often inefficient or unpleasant for both. Agencies in other industries charge high fees or have lots of failed deals due to this “defect-defect” behavior, as one case study in recruiting showed. It’s bad for everyone.
Change the Game
The good news is that you can change the game. Treating clients as long-term partners, effectively turning a one-shot interaction into a repeated game, means you encourage cooperation. When a client senses that you truly care about your relationship and your reputation (because you’re planning to be in the business for the long haul), they’re more likely to trust you and play fair on their end, too.
Research in game theory shows that simply shifting the perspective to a longer-term, ongoing interaction moves people toward a trusting, “we’re in this together” approach. In practical terms, that means being patient, staying in touch, and demonstrating that you’re not just out for a quick profit.
Building Trust
Building trust is absolutely critical here. As one industry expert put it, borrowers need to feel confident that their loan officer is acting in their best interest (after all, a mortgage is one of the biggest financial decisions of their life). Trust isn’t handed over automatically. It’s earned through consistent, honest communication and a genuine desire to help the client get the best outcome.
This might involve being upfront about potential challenges in their application or giving them candid advice, even if it’s not exactly what they were hoping to hear. That kind of honesty goes a long way. It shows the client that you care about their success, not just closing the deal.
Over time, this trust translates into loyalty. A client you’ve treated well is more likely to come back to you when they need another loan or refer others your way, effectively rewarding your cooperative approach.
Flip Side
On the flip side, if you view each client as just a one-time commission, you might be tempted to cut corners or push too hard for your own interest. You might “win” the small game, but you’ll likely lose the bigger one. The client may never return, or worse, they might discourage others from working with you.
In game theory terms, that’s a lose-lose outcome. So, think of every client interaction as part of a larger, ongoing game, one where your reputation and long-term success are on the line. This perspective will naturally guide you to behave in ways that build trust, encourage cooperation, and create mutual wins.
👻 October Spooky Savings
October means spooky savings! This week, take 20% off all real estate and mortgage continuing education courses at Empire Learning. Use code SPOOKY at checkout and fall into the savings while earning those credit hours.
🎃 Browse CE CoursesOffer valid through October 7. Use promo code SPOOKY at checkout.
Anticipating Moves and Aligning Incentives
Negotiating with borrowers, real estate agents, or even your own lending partners is a major part of an MLO’s job. Game theory can make you a better negotiator by training you to anticipate the other side’s moves and consider the incentives at play.
A negotiation is basically a strategic game. Each party has choices (for example, you can offer a concession or hold firm; the client can accept your offer or seek a loan elsewhere), and each choice leads to different outcomes. Here are some game theory-inspired tips for navigating these situations.
Put Yourself in Their Shoes
Try to mentally play out the scenario from the client’s perspective. What might they do if you quote a higher rate or strict terms? If it’s easy for them to go to a competitor, assume they will unless you give them a reason to stay. Anticipating their likely response means you can adjust your strategy.
For instance, if a borrower is rate-shopping, you might preemptively highlight other value you offer (like a faster closing or personalized service) so the game isn’t solely about the lowest rate. Always ask, “If I were the client right now, what would I do?” and plan accordingly.
Know the Alternatives (BATNA)
In negotiation lingo, BATNA stands for “Best Alternative To a Negotiated Agreement,” which is a fancy way of saying backup plan. In game theory terms, this is understanding what happens if no deal is reached. You should know your own fallback (e.g., if the borrower walks away, do you have other leads, or is losing this deal a big blow?) and try to gauge your client’s fallback.
If your client has a pre-approval from another lender at a similar rate, their alternative is strong. You’ll need to offer something better or different to win them. If you’re their only good option (maybe their credit situation is tricky, and you have the niche solution), then your position is stronger.
The party with a stronger BATNA has more leverage. Use this knowledge to guide how hard to negotiate. And remember, if your client’s alternatives improve (say rates drop elsewhere), you may need to adjust your approach to keep the deal attractive.
Share Information and Be Honest
One of the quickest ways a negotiation can go awry is when one side knows a lot more than the other and uses that to their advantage, which game theory calls information asymmetry.
For example, you might know that a certain loan program has stricter requirements that the client isn’t aware of, or the client might not reveal that they’re also talking to another bank. This imbalance can lead to mistrust or bad decisions.
The remedy is transparent, two-way communication. Be open about the process, the pros and cons of each option, and encourage the client to be open about their concerns or comparative quotes. When both sides put their cards on the table, you can work toward a solution that genuinely works for both.
Yes, being honest, even about bad news or limitations, might feel risky, but it builds credibility. Clients appreciate a loan officer who says, “I want you to have all the info, even the not-so-great parts, so you can make the best decision.” That honesty can set you apart.
In fact, showing you’re willing to point out a less-than-ideal detail for the client’s sake signals that you’re looking out for them, not just trying to close a deal. It turns a potentially adversarial situation into a collaborative problem-solving session.
Aim for Stable, Fair Outcomes
In game theory, an outcome where neither party has an incentive to back out or change their decision unilaterally is considered a stable equilibrium. This means that a good deal is one where both you and your client feel satisfied enough that neither regrets the agreement later. Strive for this in your negotiations.
If one side feels short-changed, the “game” isn’t really over. The unhappy party will keep looking for ways to better their position (maybe your client keeps shopping rates after locking, or you feel resentment and don’t put in as much effort). A fair deal, by contrast, sticks.
For example, if a client is pushing for a slightly lower fee and you can accommodate it without hurting your bottom line too much, consider conceding as a gesture of goodwill. In return, perhaps ask for something that helps you (like they complete the application paperwork by a certain date, making your job easier). Both sides give a little to get a lot.
The final agreement should be balanced: the client feels they got a good mortgage and excellent service, and you feel your time and effort are appropriately rewarded. When both sides walk away happy, you’ve likely found that sweet spot where trust and value intersect. That’s a stable, successful outcome.
Think Long-Term, Even in a Single Negotiation
This ties together all the points above. Don’t approach talks with a client as if this deal is the only thing that matters. Even while hashing out the details of one loan, keep an eye on the future. If the client senses that you’re interested in more than just this transaction, that you truly care about their financial well-being, and maybe even working together again, they’ll be more receptive to working with you. It changes the tone from “opponents” to “partners.”
For example, you might say something like, “My goal is to get you into this home and make sure you’re in the best position for your long-term financial health. I want you to be so happy with this process that you’ll call me when it’s time to refinance or when your family and friends need a loan.” Statements like that, backed up by your actions, show the client that you value the relationship.
It’s not just talk. You’re implicitly saying we’re in a repeated game, not a one-off. This often encourages the client to cooperate and be reasonable, because they see the benefit of staying on good terms with you. It also holds you accountable to act with integrity.
The result is usually a smoother negotiation where both sides are working toward the same goal (getting the loan closed in a way that works for everyone), rather than trying to “beat” each other.
TLDR: Playing the Long Game
Bringing game theory into the realm of mortgage lending doesn’t mean you need to crunch equations or play mind games with clients. It really boils down to a mindset of strategic empathy. You’re still the friendly, helpful professional you’ve always been, but now you’re also thinking a step ahead, considering the incentives and likely reactions in each situation.
- You’re recognizing when a situation could be win-win and striving for that.
- You’re aware of trust as a currency that appreciates over time.
- You’re planning not just for the immediate outcome, but for the next interaction and the one after that.
Should you match a competitor’s lower-rate offer? Game theory thinking helps you weigh the long-term payoff of a loyal client versus the short-term hit. How do you handle a client who seems hesitant? Instead of pressing harder (which might make them bolt), you might share more information and give them space, a move that builds trust and draws them closer. Basically, you start playing the long game, which in the mortgage business is the winning game.
At the end of the day, being an MLO is about relationships as much as numbers. If you treat each client interaction as part of a greater strategy of cooperation, mutual respect, and forward-thinking, you’ll not only close deals, you’ll build a network of clients and partners who are rooting for you and sending business your way.
That’s the payoff of applying a bit of game theory to your world... better decisions, stronger client partnerships, and a reputation that sets you up for continued success. And you don’t need a PhD or a Hollywood movie made about you to do that, just the willingness to think a few moves ahead and always consider the other player on the board.
Sources
- Investopedia – Ultimate Guide to Game Theory: Principles and Applications. Definition and overview of game theory as “the science of strategy,” including its use in business and negotiations.
- FasterCapital – The Basics of Game Theory and its Application to Credit Risk. Discusses zero-sum vs. non-zero-sum scenarios in lending; uses a lender-borrower interest rate negotiation as an example of a zero-sum game.
- Dover Blog (George Carollo) – The Game Theory of Recruiting. Illustrates how one-shot vs. repeated games affect trust and cooperation in business relationships. Demonstrates that moving from a one-off interaction to a repeated interaction (ongoing relationship) encourages a shift from a low-trust equilibrium to a cooperative win-win scenario.
- Ali Abbas Eren (Medium, Aug 2025) – Game Theory in Negotiation: A Step-by-Step Guide for Better Outcomes. Provides accessible explanations of game theory concepts like the prisoner’s dilemma, information asymmetry, and BATNA in negotiation contexts. Contains the example of two coffee shops undercutting each other (analogous to price wars) as a “both lose” outcome of not cooperating, and defines information asymmetry in deals. Also offers negotiation tips such as understanding your BATNA (best alternative) to strengthen your position.
- Chris De La Motte (Sonar Blog, Dec 2024) – Understanding Buyer Psychology: Essential Insights for Loan Originators. Emphasizes the importance of trust, honest communication, and empathy in client relationships for MLOs. Notes that trust is built through consistency, openness, and genuinely acting in the client’s best interest, and that this honesty and transparency can lead to repeat business and referrals in the long run.