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Flight Overbooked? Use Game Theory to Get the Biggest Payout

This past May, a large commotion occurred when a doctor was forcibly removed from a plane and the video was viewed millions of times. The details behind what had taken place was that United Airlines had overbooked the plane, a common practice that the company uses to make more money by selling more seats than the plane has, in the likely event that people will miss the plane or cancel. In the case that a plane has more people ready to fly than there are seats, United would offer monetary compensation to any individual who would forfeit his or her seat. This monetary compensation in almost every case would be worth less than the cost of the seat itself and United would profit.

This ties into game theory and Networks because if one looks at this from the fliers point of view, this is essentially an ascending auction for any flier. The airline will continuously raise the price of the seat or seats until an individual is willing to take money. What the article clues us in on is that if many or all fliers are in on it together, they could get more money from the airline. If one’s decision is independent of every other person’s decision, then it is smartest to hold out until the price of the seat you paid for is offered. Assuming you paid for the seat at a price at or below your value of the seat, you should never take money for less than what your seat is worth, unless your value of what the seat is worth changes. However, if one waits out for the price of not taking the seat to reach his or her value, it is likely one of the other hundreds of people will have a lower value and take it. Thus, what can be learned is that if all of the plane’s fliers team up they can get a much larger amount for one person, but in most general cases the person should wait until the price reaches the individual’s current value of the seat.


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September 2017