Strategic group formation in the el farol bar problem

Abstract

The El Farol bar problem sprung from one patron’s wish to avoid the bar’s busy nights in the 1990s. The problem became of interest to economists because of its potential application to other consumer choice behavior problems, e.g., route selection on a congested roadway. The El Farol bar problem involves multiple decision-making agents trying to outwit each other and only attend the bar when it is not overcrowded. Each agent makes their decision based on historical data and draws their attendance strategy from a limited pool. We adapt the model of the problem developed, by Rand and Wilensky, to include group decision-making behavior and strategic group formation. In our version, agents can use the best strategy from the whole group, not just their own set. However, the larger the group, the more it adds to the overcrowding issue. Thus, an agent must balance access to a large attendance strategy pool with group size. We had hypothesized that including strategic group formation will increase overall social welfare, but our analysis shows that allowing agent groups results in a undesirable scenario for all agents; this is due to the limited rationality of the agents.