Understanding digital risk governance in manufacturing supply chains: behavioral insights from prospect theory and evolutionary games

Purpose This paper examines the manufacturing supply chain enterprises in China, characterized by complex structures and undergoing digital transformation processes. It explores the evolutionary mechanisms and drivers of strategies adopted by the government and supply chain enterprises for the collaborative governance of digital risks, and develop a multi-agent strategy to enhance the risk response and governance efficiency of the supply chain. Design/methodology/approach This paper constructs a tripartite evolutionary game model of the manufacturing supply chain based on prospect theory, involving the government, lead firms, and subordinate firms, to investigate collaborative strategies for digital risk governance. A system dynamics approach is used to simulate strategic interactions to examine how government regulation and internal enterprise factors shape decision-making and evolutionary outcomes. Findings (1) The combination of strict regulation by the government and active governance by supply chain enterprises represents the optimal evolutionary stable strategy (ESS) for achieving effective digital risk governance. Although a higher initial willingness slows the government's regulatory convergence, it accelerates firms' transition toward active governance, leading to a faster attainment of the (1,1,1) ESS state. (2) Governmental factors, including tax rate, penalty, and regulatory intensity, are positively associated with firms’ propensity to engage in active governance. (3) The coefficient of additional benefit from passive governance and the risk loss sharing ratio are critical drivers of governance behavior. Compared with unilateral passive governance, joint passive governance amplifies the effect of additional benefits on strategic choices. Moreover, a well-designed risk-sharing mechanism significantly promotes collective engagement in active governance across the supply chain. Originality/value This paper reveals how policy tools and supply chain collaboration jointly shape multi-agent digital risk governance, providing both theoretical insights and practical guidance for governments. It also offers guidance for manufacturing supply chain enterprises to enhance their digital risk resilience.