Behavioral Game Theory

The UK government has recently announced the route for the second leg of the long awaited high speed rail link between London and the north of England. This prompted the usual appeals to cost-benefit analysis to argue one way or the other. Most ‘experts’ seemed to be arguing that the supposed benefits are largely illusory and so the link does not make economic sense. But what does that really mean?    Cost-benefit analysis is one of the most basic tools in the economist’s armoury. It’s pretty clear, however, that the general public don’t like it. Many people I heard on the radio talking about the rail link were annoyed by the experts cost-benefit calculations. Similarly, when health economists argue that a particular cancer drug should not be made available on the National Health Service because the costs exceed the benefits, people aren’t too pleased. So, what’s wrong with cost-benefit analysis?     G iven that I’m an economist it will be no surprise to hear that I don’t think

The issue of standing up at football grounds has been attracting some attention recently. The basic problem people are talking about is one of externalities and property rights: Post the Hillsborough disaster, standing is banned at the major football grounds in Britain. Clearly, however, that does not stop some fans wanting to stand up in order to enjoy the game that bit more. But, if a fan stands up that creates a negative externality for anyone sitting behind – at best the person behind has to also stand up to see the game, at worst the person cannot see even if they stand up. Some fans are arguing that football is not football without standing – others are annoyed at not being able to see the game. My perspective would be to look who has the property rights. And given that standing at grounds is banned the property rights clearly stand with those who want to sit and see the game. So, ‘sit down’.      Thoughts of standing at football remind me of watching football in my childhood

Over Christmas I had chance to read The Stag Hunt and the Evolution of Social Structure by Brian Skyrms. A nice read, very interesting and thought provoking. There’s a couple of things in the book that prompt further discussion. The one I want to focus on in this post is the distinction between the stag hunt game and the prisoners dilemma game.    To be sure what we are talking about, here is a specific version of both type of game. Adam and Eve independently need to decide whether to cooperate or defect. The payoff matrix details their payoff for any combination of choices, where the first number is the payoff of Adam and the second number the payoff of Eve. For example, in the Prisoners Dilemma, if Adam cooperates and Eve defects then Adam gets 65 and Eve gets 165. Prisoners Dilemma Eve Cooperate Defect Adam Cooperate 140, 140 65, 165 Defect 165, 65