Behavioral Game Theory

Yesterday West Ham United Football Club were essentially given the London 2012 Olympic Stadium for the bargain price of £15 million. True, they will not own the stadium, and will have to pay rent. But, this does nothing to alter the basic fact that West Ham has been handed a bargain.    And its a bargain deal that has annoyed many. The Stadium cost around £500 million to build and converting it into a football stadium is going to cost at least another £100 million. Most of this funding has come from the taxpayer. So, on face value it looks like the UK taxpayer is giving a football club a very big gift - a £600 million stadium for £15 million. To make sense of this we need to think about sunk costs and bargaining.      Let's look at sunk costs first. The stadium was built for the London Olympics, and not the benefit of West Ham. Spending £500 million on the stadium was, therefore, arguably money well spent by the British taxpayer. But times move on: the...

I was in a restaurant the other day, waiting for someone, and could not but help overhear a conversation between a restaurant manager and an elderly lady organizing a dinner party. They were discussing the arrangements for the party, and had just got onto the topic of drinks.    The manager reminded her that drinks were not included in the package. 'Would she like to prepay for some wine and put it on the table?'    She said 'no because not everyone drinks wine'.    'OK, so, would she like to pre-book some wine under the proviso that it only has to be paid for if it gets drunk?'    Displaying the characteristics of a true game theorist she replied 'well if you tell them they can drink it they are clearly going to drink it aren't they! No, I'm not doing that'.   The next gambit of the manager was 'you could start a tab at the bar under the proviso that the tab will be split amongst all the guests at the end of the party'.   To my ho...

BBC Radio 4 is running a programme next week 'in the defence of bureaucracy' with Gus O'Donnell. I'll listen in, but do not expect to be converted. So, what's the argument against bureaucracy, and how can we frame it in an economic, game theoretic context?      Let's start with some examples. Without wanting to be too specific, I asked for something from the University last week. OK, but you need to fill in form X. We filled in form X. Yes, but you also need to fill in form Y. Needless to say, by the time this had all played out, I didn't get what I needed in time. Another example. A colleague was visiting recently from abroad and looking for somewhere to stay for 5 months. The estate agents were 'unable to help' because their contracts are for 6 months.     What binds together both of these examples? In both cases there are rules, fill in form X, or contracts are for only 6 months. In both cases, the rule is pointless. In both...