After United Airlines passenger David Dao was dragged off of a plane and bloodied in 2017, airlines went to extreme lengths to avoid involuntary denied boardings – and committed not to bump passengers from flights after they were already in their seats. We saw airlines offer vouchers as much as $10,000 to make giving up a seat ‘voluntary’ even though legally they could just tell a passenger to stick it and owe them no more than 4 times the cost of their one way ticket in cash, not to exceed $1,550.
This is how badly United didn’t want to give me cash: pic.twitter.com/sI7vmbeB2Q
— Allison M. Preiss (@allisonmpreiss) March 22, 2018
The generous payments have been curtailed somewhat since the start of the pandemic as a cost-saving measure, at both American Airlines and United. And airlines have taken measures to try to limit their payouts even when available, making lower offers first and seeking volunteers in advance, but we still do see overbooked flights at the gate.
That’s when a bidding war ensues and game theory takes over.
- The airline starts low and raises their bid to get passengers to give up their seats
- If the passengers all hold out and don’t take the offers, the amount goes up and whomever gives up their seats gets more.
- But each passenger, by not volunteering, risks that a different passenger will be the one to take home a big score.
Denied boarding compensation is a cooperation game. As long as everyone sticks together, the total compensation amount will be higher. But as the compensation offer goes up the incentive for a given passenger to defect gets greater and greater.
TV writer Mike Drucker observed this in action, and watched passengers in New York stick together, as the airline’s offer went up and up.
At JFK. Guy behind the counter asks for a volunteer to give up a seat for $500. Nothing. "$550." The crowd suddenly coalesces to shout "HIGHER!" like it was a game show. "$750" "HIGHER! "800!" "NOT IN NEW YORK! GO HIGHER!" They applauded the elderly woman who took it at $1100.
— Mike Drucker (@MikeDrucker) December 24, 2022
An ‘elderly woman’ defected at $1100. Perhaps because she was a senior citizen, she met approbation rather than scorn. And $1100 seemed like a success. Given the amount and that it was New York JFK this was likely Delta.
Another Delta story over the holidays involved even more money. Passengers need to stick together.
Delta needed somebody to give up their seat, they OPENED the bidding at a $1500 ON A GIFT CARD. None of that flight voucher bullshit. Gotta respect that. Whole plane stood strong and held out. Never accept the first offer. pic.twitter.com/wf7ZqaG0y6
— Roy Wood Jr- Ex Jedi (@roywoodjr) December 20, 2022
Game theory is useful when considering whether to rat on a criminal co-conspirator (prisoner’s dilemma), nuclear deterrence (focal point), and when dealing with airlines.