An interesting piece on game theory and the Traveler’s Dilemma. As Heinlein once said, man is not a rational animal — he is a rationalizing animal.
6 thoughts on “When It’s Smart To Be Dumb”
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An interesting piece on game theory and the Traveler’s Dilemma. As Heinlein once said, man is not a rational animal — he is a rationalizing animal.
Comments are closed.
I don’t know – it seems to me that a rational person would take the problem on this way:
There is an x% chance that my opponent will choose $2. x is determined by my estimate of the human population’s response distribution. I then maximize my return, using that probability distribution – not assuming mathematically rational behavior.
In other words, my take is that humans have been designed to achieve rational solutions (and in this case, super-rational solutions) by game theory applied to them, not by them applying game theory. To put it in a “Heinlein”, “man is not a rational animal, he is a rationalized animal”.
After reading the article… their understanding of game theory is flawed. I think the key is in this line: “In that case, you’re better off bidding $98, for the same reason that $99 was better than $100”. Picking 99 is the only way to increase the maximum reward. It’s a boundary condition. Also, game theorists, or at least competent ones, understand that no individual interaction is truly independent and that the scorpion strategy in prisoners dilemma scenarios is sub-optimal.
Another way to look at it: Dropping to 97 from X reduces my max payout by 2, whereas not dropping at all reduces my max payout by 1, regardless of what my opponent picks. I have no information about my opponent’s choice, and thus cannot estimate my minimum payout.
Now let’s do this with Australians. Both will claim the vases are worth far more than $100 and will hence both claim $100 and want to talk to the airline reps supervisor.
I completely agree with Robbie Gleichman’s comment: “A bid of $99 yields the highest payoff, and people assume other people will act just like themselves, securing a value close to, or more than the full $100. It seems that game theorists need to reevaluate their definition of rationality.”
Event better comment:
“So it is NOT automatically irrational to assume that most people will not tie themselves in logical knots, but will instead make a high bid assuming you will do the same, and thus bid high yourself. This is, rather, a demonstration that you understand human behavior and are acting quite rationally. The $2 bid is only rational if you are certain your opponent will bid likewise. Otherwise it is quite irrational.”
Sorry, Rand, but I think Heinlein’s comment does not apply here at all (even if it often does in other circumstances).
I’m not trying to beat the other passenger, I’m trying to beat the damn airline that broke my vase. I’m assuming the other traveller is equally pissed and wants maximum retribution as well.
I’m at a complete loss why a rational person would spiral down to $2 when $99, $98, or $100 are easily possible. Is it irrational to play to odds? I’m curious what rationale drives the expected answer to $2. Example, suppose that my vase is really worth the $2. I could bid it being perfectly honest. Well, the rational person would maximize, and $100 is out there on the table. The only way I lose is if the other person’s vase is also $2 and they bid that and I bid higher. In that case I get $0. If I have a 96% chance that the other person bids any number higher than the value of my vase minus $2, then why would I play the 4% odds? Again, I’m still beating the damn airline that broke my vase.
Any value less than the price of the vase is a loser for a rational person. Any value higher is rational. The only game with the other passenger is actually hoping their vase is worth more. If that is my thought, then why would I assume it is lower and try to shoot below some arbitrary lower number that I don’t know? This isn’t an imperfect system in which both of us don’t know the price of both the other vase and our own vase. I know the price of my vase, and that should be the rational floor for me.