GAME THEORY EXPERIMENT

The Travelers Dilemma: An Indian Context

Report submitted to Prof. SUDHINDRA S

As a part of CIA of STRATEGIC THINKING AND GAME THEORY

Submitted by

V VANDHANA 1627063
SIDDHARTHKARUN K 1627127
JACOB MATHEW MAPPILASSERRY 1627218
VRINDA MATANHELIA 1627362

Group: 13

Class: 3MBA

Academic Year: 2016 17

 The Travelers Dilemma: An Indian Context

Introduction and Motivation:

The Traveler's Dilemma (TD) is a game in which 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.

Travellers Dilemma was originally introduced in 1994 with a motivation to show the
limitations of classical game theory, and in particular about rational behaviour considered for
obtaining the Nash Equilibrium. TD has other implications on our understanding of real world
situations. This game shows how the arms race acts as a gradual process, taking us in small steps to
ever worsening outcomes.

Concepts to which the experiment is mapped:

This experiment is related to the game theoretical concepts of Simultaneous Games,

Individual Rationality, Nash Equilibrium and evolutionary stability of strategies. This game
highlights the conflicts between intuition and game theoretic reasoning.

Design of the Experiment:

The Travelers dilemma game conducted here is modified to Indian context by changing the
payoff values. The Traveler's dilemma is a two player game in which both the players items get
damaged during an air travel and the airline manager is willing to compensate both players with an
amount between Rs. 20 and Rs. 1000. In this game each player has to choose an amount between
Rs. 20 and Rs. 1000. The players receive the following payoff:

If both the players choose the same value X, they both receive Rs. X
If the players choose different values, both players will receive the smaller value. An extra
Rs. 20 is paid to the player who chose the smaller value as a reward, and Rs. 20 is deducted
from the player who chose the larger value as penalty.

In this game to be conducted, the players would be actually asked estimate the value for their
antique before estimating for the dilemma situation in order to identify the rational thinking among
individuals when there is no dilemma.
 The participants considered in this game were people of age 18 and above. This experiment was
conducted by assuming the participants have really lost their antiques to airlines and also the
players are not able to communicate with one another. The concept of evolutionary stability could
not be verified because the game was conducted on one shot only.

The Nash equilibrium in the above case is that both players choosing Rs. 20. The Payoff
Matrix with the individual payoff for each option of both the players is depicted below:

Options for Player 2 (in Rs.)

20 21 22 23 24 25 ... 998 999 1000
20 20,20 40,0 40,0 40,0 40,0 40,0 ... 40,0 40,0 40,0
Options for Player_1 (in Rs.)

21 0,40 21,21 41,1 41,1 41,1 41,1 ... 41,1 41,1 41,1
22 0,40 1,41 22,22 42,2 42,2 42,2 ... 42,2 42,2 42,2
23 0,40 1,41 22,22 23,23 43,3 43,3 ... 43,3 43,3 43,3
24 0,40 1,41 22,22 3,43 24,24 44,4 ... 44,4 44,4 44,4
25 0,40 1,41 22,22 3,43 4,44 25,25 ... 45,5 45,5 45,5
... ... ... ... ... ... ... ... ... ...
998 0,40 1,41 22,22 3,43 4,44 5,45 ... 998,998 1018,978 1018,978
999 0,40 1,41 22,22 3,43 4,44 5,45 ... 978,1018 999,999 1019,979
1000 0,40 1,41 22,22 3,43 4,44 5,45 ... 978,1018 979,1019 1000,1000

Actual Conduct of the Experiment:

The experiment was conducted among 86 people who were grouped together in two after
their estimates were made, in order to ensure that communication did not happen between the
players. To ensure participation, this experiment was promoted as a real game and the players were
assured they would know the results once we receive all the responses

Later the real dilemma situation was explained to the players. We ensured that the players
understand the situation before making the decisions. Estimated values were collected in both
hardcopies as well as using Google forms. The players were clubbed together into groups with the
player who gave the next immediate response. We also observed that certain players completed the
estimation immediately and certain players took time for the estimation.

Results of the Experiment:

The values obtained from scenario 1 where people were asked to estimate the value for the
loss without any opponent or constraints is given below. The rationality in the scenario without
dilemma is considered to the Rs. 1000 since it is the maximum payoff for the player.
 Scenario 1 - Without Dilemma
Rational Irrational
Total
(Players estimated Rs. 1000) (Players estimated less than 1000)
Number 23 63 86
Percentage 26.74% 73.26% 100%

The estimated values provided by the players from travelers dilemma experiment clearly
mentions that only 3% of the participants behave strategically as per game theory and nearly 97% of
the players estimated based on intuition.

Scenario 2 - Traveler's Dilemma

Rational Intuitional
Total
(Players estimated Rs. 20) (Players estimated other than 1000)
Number 3 83 86
Percentage 3.48% 96.52% 100%

As the game theory state players will behave rationally and would be opting for Rs.20 where
as people behave differently in real world. These results clearly mention there is a conflict between
the game theoretical Nash Equilibrium and the real world.

It is also to be noted that around 62.7% of players estimated differently in both scenarios
and only 37.3% players only estimated same values in both scenarios which reflects the decision
changes of people under different situations.

Conclusion:

The results obtained from the experiment states that most people do not think or behave
rationally. The Nash Equilibrium derived from game theory is contradictory to the results of the
experiment. People tend to change behaviors when new constraints are introduced for the same
situation.

The reason is because of that most players wanted to get maximum amount which they
could get as compensation in both the cases. Since it was a game of imperfect information it was
difficult for the players to identify the other players estimates. Since this is done as one shot the
players were not able to repeat the game. If the game is repeated multiple times there is a possibility
that the players might attain the game theory proposed Nash Equilibrium.
References:

Basu, K. (2007, JUNE). THE TRAVELERS. SCIENTIFIC AMERICAN , pp. 90-95.

Basu, K. (1994). The Traveler's Dilemma: Paradoxes of Rationality in Game Theory. The American
Economic Review , 391-395.

Capra, C. M., Goeree, J. K., Gomez, R., & Holt, C. A. (n.d.). Anomalous Behavior in a Travelers Dilemma?
Retrieved from University of Virginia: http://www.people.virginia.edu/~cah2k/tdweb.pdf