Anomalous Behavior in a Traveler's Dilemma?

Abstract

Kaushik Basu (1994) introduced a traveler's dilemma in which two people must independently decide how much to claim for identical objects that have been lost on a flight. The airline, in an attempt to prevent fraud, agrees to pay each the minimum of the two claims, with a penalty for the high claimant and a reward for the low claimant. The Nash equilibrium predicts the lowest possible claim no matter how small the penalty and reward. The intuition that claims may be high is confirmed by laboratory experiments. Average claims are inversely related to the size of the penalty/reward parameter, which is explained by a stochastic generalization of the Nash equilibrium.

Strategic Choice of Preferences: The Persona Model

“…So, for such values of R, the players are fully rational. These results agree with experimental data (Capra et al, 1999) on what happens as R changes.…”

“…In Section 5 we show that empirical data on the Traveler's Dilemma (Basu, 1994;Becker et al, 2005;Capra et al, 1999) are explained by persona games, and briefly describe how the persona games framework explains empirical data on the Ultimatum Game.…”

“…To illustrate the persona framework, we provide an explanation for some of the experimental data concerning the Traveler's Dilemma (TD) (Basu, 2007;Capra et al, 1999;Basu, 1994;Rubinstein, 2004;Becker et al, 2005;Goeree and Holt, 1999). The TD models a situation where two travelers fly on the same airline with identical antiques in their baggage, and the airline accidentally destroys both antiques.…”

Cooperating over losses and competing over gains: A social dilemma experiment

“…Previous experiments featuring the TD show that for low values of R relative to the upper bound, claims are clustered around the highest possible claim (Capra et al, 1999;Goeree and Holt, 2001;Becker, Carter and Naeve, 2005;Rubinstein, 2007), a result we replicate in section 5.2. As the reward/penalty parameter grows larger, however, claims converge to the Nash equilibrium play (Capra et al, 1999;Goeree and Holt, 2001).…”

“…Noisy behaviour in the TD is also empirically plausible: Oppenheimer, Wendel and Frohlich (2011) find that from period to period, behaviour of many individuals in social dilemmas appears to be almost random. Furthermore, models premised on noisy decision making do well at explaining the effect of changing the reward/penalty parameter on subjects' behaviour in the TD (Capra et al, 1999).…”