There was an article in Scientific American a few years ago about the Traveler’s Dilemma and how human beings make more money than the Nash Equilibrium tells them to. Edit: Wikipedia summary
It occurred to me that the percentage fallacy might explain why people give high numbers in this version—the Nash equilibrium is pocket change compared to the max payoff. The same is true for the reward for undercutting; you might not be so motivated to low-ball if your reward for doing so is 2% of the max payoff.
It would be interesting to see an experiment where the payoff for giving the low estimate varied. If you were playing the game with a $10 bonus for lowballing, would you give the Nash equilibrium of $10? Or would you maybe go for the $40s or $50s hoping the other person would go even higher? My guess would be that as the reward for undercutting as a percentage of the max reward increases people get more and more vicious, and at some percentage people will default to the Nash equilibrium.
There was an article in Scientific American a few years ago about the Traveler’s Dilemma and how human beings make more money than the Nash Equilibrium tells them to. Edit: Wikipedia summary
It occurred to me that the percentage fallacy might explain why people give high numbers in this version—the Nash equilibrium is pocket change compared to the max payoff. The same is true for the reward for undercutting; you might not be so motivated to low-ball if your reward for doing so is 2% of the max payoff.
It would be interesting to see an experiment where the payoff for giving the low estimate varied. If you were playing the game with a $10 bonus for lowballing, would you give the Nash equilibrium of $10? Or would you maybe go for the $40s or $50s hoping the other person would go even higher? My guess would be that as the reward for undercutting as a percentage of the max reward increases people get more and more vicious, and at some percentage people will default to the Nash equilibrium.