How Game Theory Relates to Airlines Overbooking
Airlines routinely sell tickets to more people than the plane can actually seat. They overbook assuming that some people will miss their flights or simply not show up. But when there are not enough no shows, airlines must attempt to find volunteers who would want to reschedule for another, often later flight. When there is a lack of volunteers, airlines usually offer rewards in forms of cash or airline vouchers. In most cases, this strategy works and airlines happily earn their money for those no show seats which otherwise would have been left empty. But in some cases, this strategy just simply does not work. The United Airlines incident was just that. When the airline employees specified that four passengers needed to be bumped, three left without question. However, Dr. David Dao, a Chinese doctor, was forcibly dragged out of his seat and off the plane. Although United Airlines apologized for its treatment of the passenger, the damage had already been done.
Indeed, the airlines industry could be doing a better job strategically overbooking flights. This is when game theory comes into play. Game theory is designed to address situations in which the outcome of one’s decision does not only depend on his or her own choice but also on the decisions made by others who are also involved in the interaction. Although in some contexts, game theory ideas arise in actual games. These strategic ideas can also emerge in many other situations such as airlines overbooking flights. On one hand, airlines want to keep all their seats full, thus overbooking flights. On the other hand, passengers on the plane want to stay on the plane. In this “game”, everything should be designed so that incidents like the one with Dr. David Dao never happens. Airlines need to strategically plan their actions and predict what the passengers will chose in each scenario. For instance, when a flight is overbooked, airlines should not let all passengers board and then try to take some of their seats away. Once passengers “own” or “have” something, they tend to value it more. If before getting on the plane, airlines offer passengers rewards for giving up their seats, some passengers may just take it. However, once passengers board the plane and take their seats, they begin to take ownership of their seats. Thus, requiring them to give up their seats would take a lot more effort. In conclusion, airlines should use concepts from game theory to make better choices about how to approach bumping passengers off a flight in order to avoid future incidents.
Source: http://www.npr.org/2017/04/13/523726313/how-game-theory-relates-to-airline-booking