The traveler's dilemma: Paradoxes of rationality in game theory

Abstract

Summary: looks at different notions of individual rationality and the paradoxes it can create via game theory and backward induction. Uses the example of the travelers dilemma wherein two travelers, having lost their similar antiques, write the replacement cost on a piece of paper (x = 2 to 100). If identical, the airline pays up. If different, the traveler with the highest price is docked while the lower price receives a bonus. Backward induction leads both sides from wanting to declare 100 to declare 2 in a one shot game under Nash equilibrium.