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...

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...

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,...

England have beaten India in India at cricket! Which for those of you who know nothing about cricket is about as good as it gets. But, this post was not prompted by Englands success. Instead it was prompted by a discussion I heard on the TMS commentary of the penultimate day of the series.    A bit of background info first: Cricket, like most sports, relies on an umpire to make decisions – and they sometimes get them wrong. Technology has been progressively introduced over the last decade in order to reduce errors. The latest development is a Decision Review System. India, however, said that they did not want to use the system against England. And the International Cricket Council Regulations say that it can only be used if both sides agree. The commentators were discussing India’s decision not to use the system after England captain Alastair Cook was wrongly given out for the second time in the game. If the Decision Review System had been in use both decisions could have...

We’ve just got back from a couple of days in France. It was a good trip, but one thing is clear - smoking is a problem in France. I have nothing against people smoking if that’s what they choose to do. What I do have an issue with, is myself and my family having to ‘share’ in their smoking. And for a large part of our trip we had no choice but to share. In public spaces - train platforms, Christmas market, cafes etc. - you could argue it is not so disturbing to be constantly engulfed in cigarette smoke. But, when you cannot escape the smoke in your hotel and hotel bedroom then it starts to get a bit annoying.     Smoking is, of course, banned in public places in France. And, there are lots of signs to remind people of this fact – the hotel was full of no smoking signs. Its just that the French appear to complete ignore the law. Indeed, during our visit a report was published by government auditors ( Cours de Comptes) highlighting the seriousness of the problem – 1 in 3...

S tarbucks has been hitting the headlines for all the wrong reasons recently. First up was the news that the company has paid corporation tax only once in 15 years of operating in the U.K. This has seemingly been achieved by making royalty payments, and the like, to parts of the business in lower tax jurisdictions. Customers, taxpayers, and the tabloid media were suitably annoyed. Starbucks’ response was to say that it would ‘voluntarily’ pay £20 million in tax over the next two years. The thought of Starbucks ‘volunteering’ to pay tax seems to have aggravated rather than calmed the situation! On Saturday, tax avoidance campaigners protested outside a number of stores forcing some to temporarily close.     Starbucks is certainly not alone in avoiding tax - Amazon and Google also usually get a mention. And they are certainly not the first company to ‘annoy’ customers on fairness grounds. For example, an accusation even more damaging than that of tax avoidance is one of ...