Behavioral Game Theory

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A blog on game theory, behavioural economics, and human behaviour.

Behavioral Game Theory

5y ago

The final part of this exciting trilogy is cross-price elasticity. (See here for estimates of own price and income elasticity.) Here we are looking for how demand for one product, say cars, is influenced by the price of another product, say petrol. The idea is to find a spread of examples from goods that are close substitutes (have cross price elasticity near 1) to strong complements (have an elasticity near -1). Within the literature there are a lot more examples of substitutes, like cars and public transport, than of complements, like cars and petrol. Indeed, it was a bit of a struggle to f ..read more

Behavioral Game Theory

5y ago

My previous blog looked at estimates of own price elasticity of demand. Now the focus moves on to estimates of income elasticity of demand. In a sense income elasticity should be easier to measure than price elasticity of demand because there is more variation in income than price. But I actually found it a lot harder to come by income elasticicities in the literature. And it was particularly difficult to get a nice spread of elasticities. Ideally we want some examples of luxury goods (with elasticity more than 1), normal goods (more than 0) and inferior goods (less than 0). The large majorit ..read more

Behavioral Game Theory

5y ago

In the textbook on Microeconomics and Behaviour with Bob Frank we have some tables giving examples of price, income and cross-price elasticities of demand. Given that most of the references are from the 70's I'm working on an update for the forthcoming 3rd edition. So, here is a brief overview of where the numbers come from for the table on price elasticity of demand. Suggestions for other good sources much appreciated. Before we get into the numbers - the disclaimer. Price elasticities are tricky things to tie down. Suppose you want the price elasticity of demand for cars. This elasticity is ..read more

Behavioral Game Theory

5y ago

In the early days of its (modern) history game theory focused a lot on zero-sum games. These are games in which total payoffs always add to zero no matter what the outcome. So, in a two player setting - your gain is my loss and vice-versa. It was arguably natural for game theory to focus on zero-sum games because they represent the epitome of conflict. The main reason the focus fell on such games is, however, more one of convenience - zero-sum games have a solution. This solution is captured by the minimax theorem and all that followed. Basically it amounts to saying that there is a unique w ..read more