Anomalous Behavior in a Traveler's Dilemma?

The notion of a Nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions. Moreover, the Nash equilibrium and closely related game-theoretic concepts are being widely applied in other social sciences and even in biology, where evolutionary stability often selects a subset of the Nash equilibria. Many people are uneasy about the stark predictions of the Nash equilibrium in some contexts where the extreme rationality assumptions seem implausible. Kaushik Basu’s (1994) “traveler’s dilemma” is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior. The story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation. Their luggage is lost on the return trip, and the airline asks them to make independent claims for compensation. In anticipation of excessive claims, the airline representative announces:

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