Environmental Engineering Reference
In-Depth Information
Lessons from Game Theory for Restoration
Economics has made substantial and increasing strides toward identifying how and
why people make decisions and behave under real-world conditions when traditional
assumptions of rationality suggest different strategies. These insights have improved
understanding of decision making under risk and uncertainty, the impact of time de-
lays, responses to inequities, the real-world constraints of human computational abil-
ity, the importance of context, and effects of emotions. Recognizing behavioral reali-
ties is important to understanding human decision making for restoration, and
prescribing strategies that will be successful.
Game theory provides a systematic and comprehensive approach to considering,
evaluating, and responding to human decision making and behavior that impact res-
toration project success. This discussion is an introduction, and numerous textbooks
and entire journals are dedicated to the subject and methods. While the method of
evaluating decisions can be useful in and of itself, a number of general lessons from
game theory can be incorporated into restoration project planning.
Avoiding Losses Is More Important than Achieving Gains
People weight the impact of a loss greater than the equivalent gain (Kahneman and
Tversky 1979). When risk includes potential loss of existing benefits, risk aversion is
exacerbated by loss aversion, also known as the endowment effect, which is the phe-
nomenon of a cost being valued more heavily than an equivalent gain (chap. 14, this
volume). This loss aversion means that losing $2,000 has a greater absolute (positive
or negative) impact on welfare than gaining the same amount of money. The impact
of an equivalent loss continues to increase with the amount of losses. One implication
is that neighbors who believe they have a right to a certain landscape condition might
seem irrational in their opposition, or they may regard the severity of a loss of produc-
tivity as being particularly important, especially if production or revenues have already
been in decline. This phenomenon has also been applied to help understand why, in
some cases, outcomes with very low probability of occurrence are weighted more
heavily than rationality would dictate. It can also be used to understand preferences
for maintaining the status quo (chap. 14, this volume).
Relative Costs and Benefits Matter
An outcome might be acceptable that involves a low (or negative) payoff if others do
not do better. Similarly, equitable distributions of gains can be so important that indi-
viduals might be willing to choose an outcome where they are worse off than to permit
an outcome where one party achieves far greater gains, particularly if they are seen to
achieve such gains unfairly. This means that individuals will, at times, be willing to
bear private costs in order to prevent or punish perceived cheating. This has been ob-
served in governance of common property resources such as forests and water supplies
(Ostrom 1991).
