EBayer’s dilemma

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Risk Anatomy

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For those spooked by the idea of the prisoner’s dilemma — being locked up in a police cell on trumped-up charges, consider instead the eBayer’s dilemma. This version Douglas Hofstadter once described as the "briefcase came", but Millennials will recognise it as the eBayer’s dilemma.

Strangers consider a settling a transaction they have drunkenly agreed on eBay to purchase a set of complete boxed set of the final season of Some Mothers Do ’Ave ’Em on VHS, for £100[1].

The seller must pay for, and the buyer must post the videos, simultaneously. Assume the seller would have sold the videos at any price over £50 (so the transaction represents a £50 profit for her), and the buyer would have paid up to £150 had that been the asking price (the transaction therefore representing a £50 profit for him). In other words, by honouring the transaction, each stands to gain £50.

eBayer’s dilemma
payoff table'

Buyer cooperates

Buyer defects

Seller cooperates

Buyer gets £50
Seller gets £50

Buyer gets £150
Seller gets -£50

Seller defects

Buyer gets -£100
Seller gets £150

Buyer gets £0
Seller gets £0

When settling the transaction, each has the following risks:

  • Cooperation: If the seller posts and the buyer pays:
    • The seller will get £100 but will lose a video it values a £50 (+£50).
    • the seller will get a video it values at £150 but must pay £100 (+50)
  • buyer defects: If the seller posts, but the buyer does not pay:
    • The buyer will have video it values at £150 for free (+£150)
    • The seller has given away a video it values a £50 for nothing (-£50).
  • Seller defects: If the buyer pays but the seller does not post:
    • The buyer will have paid £100 for nothing (-£100)
    • The seller will receive £100 for nothing (+£100).
  • Mutual defection If the seller does not post and the buyer does not pay:
    • The seller is in its original position (£0).
    • The buyer is in its original position (£0).

See also

References

  1. The eBayers don’t have to be drunk, but as we all know, most people on eBay are, so this is a bit of dramatic colour.