|The Traveler's Dilemma is motivated by a story of two travelers who
lose identical pieces of luggage, and are requested to make claims. The
airline representative promises to reimburse each, unless one claim is lower,
in which case each person receives the lower claim.
In addition, a small reward is added to the payoff of the
person with the lower claim, and an equal amount is deducted from the other's
Claims are required to be greater than or equal to a specified lower bound.
The reward for being low provides an incentive
to "undercut" any common claim, so the only Nash equilibrium is for all to claim the minimum allowed level. This theoretical prediction is
independent of the size of the penalty/reward parameter R, which is the basis
for the class default setup.
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This is a social dilemma with the interesting property that the optimal claim
depends on what the other's claim is expected to be.
Laboratory experiments produce decisions that
may deviate sharply from Nash
predictions when R is relatively low and converge to predictions
when R is high (see Capra, Goeree, Gomez, and Holt,
Vecon Lab - October 22, 2021