Behavioral Game Theory

There has been a lot of media coverage recently on the cost of attending Premier League football matches. One particular focal point was a protest by Liverpool supporters over plans to charge £77 for a ticket. In response to this protest the owners of Liverpool back-tracked and said they would keep prices pegged at current levels (where the highest price is £59). But, why should prices not go higher?           The data on Premier League attendances shows that, for the vast majority of games, stadia are full. And there is no doubt that many more would attend if they could get tickets. Such excess demand clearly means that plenty of people are willing to pay high prices. This gives a strong rationale for clubs to push prices higher and increase profit. Indeed, it is what the economic textbook says they should do.         But, the main consequence of an increase in prices is to extract surplus from supporters. Essentially supporters are p...

A recent  study by Maxwell Burton-Chelle, Claire El Mouden and Stuart West, published in the Proceedings of the National Academy of Sciences , challenges one of experimental economics most robust findings. They argue that conditional cooperation reflects subjects confusion over experimental instructions and not social preferences. So, what to make of this result?        Let me begin by providing a little background on conditional cooperation. A  study by Urs Fischbacher, Simon Gachter and Ernst Fehr, published in Economics Letters 2001, looked at how people behave in a pubic good game when they get to see the contributions of others. More specifically:         They considered a setting with 4 people. Each person could contribute up to 20 tokens into a public project. Any tokens not contributed were worth, say, $1 to that person. Any tokens contributed were worth $0.40 to everyone in t...

Evidence (albeit somewhat anecdotal) suggests than women are being asked to pay considerably more than men for almost identical consumer products. This seems to apply to clothing, toiletries, toys, even pens. Why? It is hard to believe that it costs more to produce products for women than men. So, I think we can safely discount the idea that the difference is being driven by costs. The far more likely explanation is price discrimination.       To illustrate consider a very simple example. Imagine you are the owner of a company making jeans. It costs £25 to produce a pair of jeans and you are currently selling them at £50 a pair. At this price you sell 100 a week to men and 50 a week to women. The key question you have to consider is what would happen to sales if you increase (or decrease) the price? Suppose that at a price of £55 a pair you estimate you would sell 80 to men and 45 to women. On the male side this is a bad deal because profit fa...

On Saturday rail fares in the UK rose by an average of 1.1%. This is the latest instalment in a long running trend of fair increases. Indeed, average fares have risen by around 40% over the last decade. As usual passengers were queuing up to say how disgraceful it all is. This year the opposition leader Jeremy Corbyn joined the fray with his standard call for a renationalisation of the railways. But what is the problem with high rail fares?        The main reason I ask this question is one of revealed preference . At the same time as complaining about high fares, most passengers also complain about having to stand on over-crowded trains. Indeed, use of the railway has soared , with over 70% more journeys now than in 2002. Moreover, I don't think that anyone would seriously dispute that the UK rail network has just about reached the limit of its capacity in terms of the number of trains operating.   ...

Nash equilibrium is the main game theoretic concept used in economics. Evolutionary stable strategy , or ESS, is the main game theoretic concept using in biology. The issue I want to look at here is the relationship between the two. This is an issue that appears to cause much confusion amongst students (and some academics).          The main thing that I would suggest needs to be recognised is that Nash equilibrium and ESS are fundamentally different. They were conceived completely independently with very contrasting objectives in mind. The Nash equilibrium was developed by John Nash in the 1940/50s as an equilibrium concept for non-cooperative games . And note that the genius of Nash was not so much to develop the Nash equilibrium but to recognise the importance of non-cooperative games. The ESS, by contrast, was developed by John Maynard Smith and George Price in the 1970s as an equilibrium concept for evolutionary games ...

The UK will soon have to decide whether to maintain its Trident nuclear weapon programme. Clearly, the nuclear capability will be maintained. This has not, though, stopped a fairly vociferous debate on the issue. The basic argument in favour of nuclear weapons, and one that we have heard time and time again in the debate, is that nuclear weapons are to deter attack and not be used. This is encapsulated in the concept of mutual assured destruction or MAD. But, just how solid is the MAD argument?            A standard logic goes something like this: If the UK has nuclear weapons then Russia would not attack the UK because the UK would have the capability to destroy Russia. Thomas Schelling, in the Strategy of Conflict , pointed out that there is a basic flaw in this logic. To see why let us set out a hypothetical game tree, see below. Russia moves first by deciding whether to attack the UK. Then the UK decides wheth...

The UK's National Health Service is nudging ever closer to collapse. This fact is blatantly obvious to many. The political will to do anything about it is, however, sadly lacking. It is particularly disappointing that the Conservatives, in a position of strength, seem more interested in tackling the immigration 'problem' that isn't a problem, than getting to grips with the huge and pressing problem that is the health of the nation.          As I have discussed before in this blog the NHS principle of free health care is simply unworkable in the modern world. That inevitably means some people are going to have to pay for treatment. This is already happening with the slow growth of the private system. Things would be much, much better, however, if the NHS would embrace the willingness of many to pay for better treatment. The flu vaccine provides a small but useful illustration of this issue.        ...