Game Theory and Policy

Most discussion of policy analysis and economics centers around two things: inequality and the distribution of efficient market outcomes, and market failures or instances where markets fail to operate efficiently.  In all of this, however, we assume that one economic agent’s payoffs is independent of other agent’s decisions.  In other words we assume that the consumption choices do not directly affect the payoffs of others.  They may indirectly affect them, as in the case of externalities, and agents may fail to account for these effects when they make their decisions but we generally assume that these decisions are not strategic, they are simply made in isolation.

But what about situations in which such decisions are strategic? In other words, what about situations where one agent’s decisions directly affect another’s payoffs and thus they other agent takes the actions of the first into account when making their own decisions.

Robert Frank of Cornell thinks this was a failure of policy when it came to the banking crisis of 2009:

FRANK EV.09.13.09

Once we are in a situation where strategic behavior is important we need new tools to analyze situations – we need game theory. Here is a case that I thought about a few years ago when thinking about transportation policy.  [And, by the way, the “Idaho Stop” rule is in discussion again in the legislature]:
The recent attention to the so-called “Idaho Stop” bill that would allow bicyclists to slow but not stop in residential intersections with stop signs got me thinking about this and about the uncontrolled intersections present in many Portland neighborhoods. How should we think about human behavior in the face of such incentives? In these cases, since the problem is inherently about more than one vehicle (or pedestrian) the interactions are strategic in nature, so game theory is the appropriate modeling framework which to employ.

Before we get to that however, Joseph Rose in The Oregonian claims that having an “Idaho Stop” law is actually safer based on incident data from Idaho pre and post law. [Note to Mr. Rose: correlation is not causation, and even if you think this law is good, please explain how such a law could be responsible for an immediate 14.5 percent reduction in bicycle injuries? I think we are dealing with spurious correlation here] But the rationale for the Idaho stop is the same for cars: if there are no other cars around, why stop fully? Sure a bike is human powered but the physical concept is identical, it takes more energy to stop and start than to maintain momentum, and if we care about climate change why not let cars do it too?

Which brings me the the topic of today: non-controlled intersections. These are intersections without any traffic restrictions – anything goes. Well not really, the right of way goes to the vehicle that gets there first, which is precisely the problem. [By the way, do you know who goes if it is a tie? Yep, the vehicle on the right, just like a 4 way stop] Anyway, most of the intersections around my son’s elementary school are uncontrolled even though there are many kids walking to school crossing at these intersections. And if you ever want to see good examples of dangerously aggressive driving, all you need to do is show up at an elementary school at drop off times. These are parents who should be most attentive to child safety, but hey their kid isn’t walking so they have nothing personal at stake except for getting to work on time. Anyway, I am constantly amazed at the reckless driving exhibited by these parents and what I have found most striking is that on the rare days that I drive my child to school and slow almost to a complete stop at these intersections to be sure there are no cars or kids around, a car from half a block away will almost always bomb right through at 30 mph. If I had asserted my right of way, we would crash and so this reckless driving is kind of like a credible threat in game theory and the logical thing for me to do is to wait until the car has passed.

I imagine that traffic engineers think that these intersections are actually traffic calming. They force all cars to slow down and proceed cautiously through the intersection. But when you think about the game cars are involved in, it is not at all clear that this is the equilibrium. Here is a depiction of a normal form game (single shot, simultaneous, non-cooperative) that I think describes the incentives. Car 1’s payoffs are the first number of the pair and Car 2’s payoffs are the second number.

stop sign game

Each car has two strategies available to them: be cautious or aggressive when entering the intersection. If both cars are aggressive, a fender-bender occurs and they both loose 10. If they are both cautious, they have to slow down, but no accident occurs so they both get 0. If one is aggressive and the other cautious, the aggressive one gets to go fast and first through the intersection and gets 10 while the cautious gets 0 again. Economics students will immediately recognize the Nash equilibria – where each car is playing a best response strategy to the other. They are the two aggressive/cautious pairs. The problem is of course when both think its the other that is going to be cautious and both end up aggressive… But anyway, this actually describes pretty well what I observe around my son’s school: some drivers being aggressive and bombing through the intersections and others being cautious.

This is not what I believe the traffic engineers think and what’s worse it means there are aggressive drivers bombing through intersections when lots of little kiddies are running about. Makes me wonder why, of all places, are the intersections around schools not controlled? And, by the way, if you really want to calm traffic, a four-way stop seems to do a good job.
What do you think?

Print Friendly, PDF & Email
This entry was posted in Uncategorized. Bookmark the permalink.

1 Response to Game Theory and Policy

  1. Pingback: Game Theory and Pandemics – Arthashastra

Leave a Reply