Behavioral Game Theory

This week's edition of the economist had an interesting article  on the knock-on effect the Ebola outbreak is having across Africa. Safari bookings, for instance, are dramatically down on previous years. This seemingly makes no sense: the traditional safari hotspots are further away from and less connected with the effected areas than most European capitals. Through the lens of bounded rationality, however, such an 'ignorance epidemic' is much easier to explain.        To explain, consider the Jackson family deciding where to go on holiday this year. Suppose that a safari in Tanzania is the best. Then, in the world of the economic textbook, a safari maximizes utility and the Jacksons would set off for Africa. And reality?         Deciding where to go on holiday is undoubtedly going to be a difficult choice because of the almost limitless possibilities to choose from. So, the Jacksons are not going to maximize utility. The best they can realistically aim for is satisfic

I recently attended a conference session that ended with a debate on whether social preferences should be taken into account when measuring social welfare. That might not sound like a particular exciting issue but I think it's an interesting and important one. So, lets look at the issues.          We can all agree on the idea that social welfare should guide policy. A policy can be considered good if and only if it improves social welfare. The difficulty is measuring social welfare. How can we reconcile the differing desires and preferences within a population? How can we take into account the desires and preferences of future generations who will be influenced by a policy? And so on.            The presence of social preferences, such as envy and altruism, muddies the waters even more as the following example illustrates. Robinson and Friday are the only people living on a desert island. Robinson is selfish and envious. Friday is altruistic and generous. You arrive with a boa