How to Buy a Car . . . Using Game Theory!

Bruce Bueno de Mesquita, author of The Predictioneer's Game, shares his foolproof method for getting your next car for the lowest price possible. 

What's the Big Idea? 


If you're not a mathematician, game theory can seem daunting and abstract. Simply defined, it is a mathematical approach to modeling situations in which there are a limited number of rational decision makers. Depending on the complexity of the situation and the number of players, the math can get pretty complicated. To complicate things further, there's an ongoing debate raging about game theory's applicability to real world situations in which, behavioral economists like Daniel Kahneman argue, people often behave irrationally. 

In spite of these complexities, and although he fully admits the limitations of game theory, Bruce Bueno de Mesquita, author of The Predictioneer's Game and The Dictator's Handbook, has had great success in applying it to everything from predicting whether or not Iran would acquire nuclear weapons to buying a car for $6000 less than one would expect to pay. Here, he explains how to avoid sticker shock by never setting foot in a dealership until you've agreed on a final price: 

What's the Significance?

De Mesquita argues that people always behave out of self-interest. In the car-buying game, the dealers want you to buy the car from them and nobody else. If threatened in the manner de Mesquita describes, they're left with two choices: either give you the lowest price they possibly can or assume you're bluffing – that you won't call anybody else. The latter choice is foolishly risky and an unlikely one for the dealer to make. But in either case, if you've cast your net wide enough, you're covered. 

The broader significance here is that the application of simple logical principles to everyday decision making can yield far better results in most cases than relying on emotion or intuition. The "bond of trust" that good salespeople rely upon in face-to-face transactions is obviously an illusion, but it works (when it does) because of our socio-emotional wiring. We want to trust people. We want to believe they have our best interests, not their own, at heart. 

Readers – what other applications can you see (or have you successfully used) for applying game theory or logic to the kinds of decisions we often make emotionally or impulsively?

 

Follow Jason Gots (@jgots) on Twitter


Image credit: Shutterstock.com

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The finding goes hand in hand with the "hygiene hypothesis," initially proposed in 1989 by the British scientist David Strachan. He maintained that our generally sterile modern world prevents children from being exposed to certain microorganisms, resulting in compromised immune systems and greater incidences of asthma and allergies.

Contemporary research fine-tuned the hypothesis, finding that not interacting with so-called "old friends" or helpful microbes in the soil and the environment, rather than the ones that cause illnesses, is what's detrimental. In particular, our mental health could be at stake.

"The idea is that as humans have moved away from farms and an agricultural or hunter-gatherer existence into cities, we have lost contact with organisms that served to regulate our immune system and suppress inappropriate inflammation," explained Lowry. "That has put us at higher risk for inflammatory disease and stress-related psychiatric disorders."

University of Colorado Boulder

Christopher Lowry

This is not the first study on the subject from Lowry, who published previous work showing the connection between being exposed to healthy bacteria and mental health. He found that being raised with animals and dust in a rural environment helps children develop more stress-proof immune systems. Such kids were also likely to be less at risk for mental illnesses than people living in the city without pets.

Lowry's other work also pointed out that the soil-based bacterium Mycobacterium vaccae acts like an antidepressant when injected into rodents. It alters their behavior and has lasting anti-inflammatory effects on the brain, according to the press release from the University of Colorado Boulder. Prolonged inflammation can lead to such stress-related disorders as PTSD.

The new study from Lowry and his team identified why that worked by pinpointing the specific fatty acid responsible. They showed that when the 10(Z)-hexadecenoic acid gets into cells, it works like a lock, attaching itself to the peroxisome proliferator-activated receptor (PPAR). This allows it to block a number of key pathways responsible for inflammation. Pre-treating the cells with the acid (or lipid) made them withstand inflammation better.

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"This is just one strain of one species of one type of bacterium that is found in the soil but there are millions of other strains in soils," said Lowry. "We are just beginning to see the tip of the iceberg in terms of identifying the mechanisms through which they have evolved to keep us healthy. It should inspire awe in all of us."

Check out the study published in the journal Psychopharmacology.