Economics, games, and choices

2007-05-22

in Daily updates, Economics

In two unrelated instances today, I ended up speaking with friends about the kind of games economists make people play in experiments. The objective in doing so is to learn how people reason, when presented with economic choices. This has a lot to do with heuristics and often generates results that do not make sense, if people have the sole objective of maximizing how much money they will earn from the game itself. That is what happened when I played one of these games during my first month in Oxford.

The form I was discussing with Mark is called The Traveler’s Dilemma (not to be confused with The Salesman Problem). Being good at games like the Traveler’s Dilemma will help you in negotiations with tricky insurance companies. Solving the Salesman Problem would earn you the esteem of mathematicians everywhere.

In a act unrelated to either conversation, Nick Howarth – an Oxonian and former Olympian who I met a couple of days ago – sent me a link to a Nobel Prize lecture on the emerging discipline of behavioural economics.

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{ 2 comments… read them below or add one }

Milan June 1, 2007 at 1:31 pm

This is being discussed at length on MetaFilter.

. November 7, 2007 at 10:04 am

Tim Darling’s “Surefire Strategy” for winning at Monopoly sounds plausible — a great way to suck all the fun out of the game, leaving behind nothing but the relentless pursuit of victory.

* Always buy Railroads; never buy Utilities *
* At the beginning of the game, focus on acquiring a complete C-G (Color Group) in Sides 1+2, even if it means trading away properties on Sides 2+3. After acquiring one of these C-Gs, build 3 houses as quickly as possible: no more houses, no less!
* Once your first C-G starts to generate some cash, focus on completing a C-G and building 3 houses in Sides 3+4.
* Note: 3 houses is the “sweet spot” in the game as shown in Table 1 below. That’s where you’re making the best use of your money.
* Single properties are the least good investment if you don’t build on them.
* The only exception to the above rules are when you need to acquire stray properties to prevent your opponents from completing their C-Gs to accomplish the above strategy.

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