The Overbooking Game
http://www.cnn.com/2017/04/11/travel/united-customer-dragged-off-overbooked-flight/index.html
When I was younger, I was always baffled at how airlines overbooked flights. I just couldn’t understand why they would sell seats that they simply did not have. The policy has led to violence and outrage, so why does it exist?
I now see the policy as an overbooking game.
Before diving into this perhaps surprising claim, a little bit of context: earlier this year, a man was dragged off a United Airlines flight because the flight had been overbooked and no one was willing to give up his or her seat. He was randomly selected, and when he refused to get out of his seat, he was beaten and bloodied before being violently removed from the aircraft. This incident sparked much discussion regarding airlines’ continued use of this overbooking policy.
There are many aspects of game theory involved in airline overbooking. The policy exists to maximize the payoff of airlines, with payoff being monetary profit. However, the game needs to be played well to avoid incidences like the one described above; incidences that could greatly impact the financial success of an airline. One such example of playing the overbooking game is auctioning: when a flight is overbooked, airlines offer more and more money/vouchers until (hopefully) one person accepts. This is like an “inverted” version of the Dutch auction, in which the auctioneer starts at a high price and lowers it until someone offers to pay the proposed value. In this overbooking game, however, the price is raised until a single person accepts. This can also be connected to a unique application of finding a perfect matching between buyers and sellers, with a seller being a voucher and buyers being passengers with different valuations of the voucher’s worth. The price increases until someone’s valuation is met.
Following this tragic event, many proposals have been made to avoid this situation in the future and how airlines can “better” play the overbooking game. One of these proposals is to increase the cap on how much an airline can offer during the overbooking auction. Regardless of how airlines choose to respond to this event, we all can agree that they must better study game theory to better play the overbooking game. Incidences like the one described should never happen.