Matching Pennies and the Blizzard that Wasn't

Imagine if you will a game. It's not a very exciting game. Perhaps it's something you play with a cellmate in a Javanese prison when all you've got is the grimy clothes on your back and a couple of stray coins you've managed to pick from the pockets of the guards. The name of the game is Matching Pennies. Here's how you play.

Each of you has one standard US penny. Each penny is inscribed with the bust of a US president on one side (heads, or 'H') and the other side with the image of a famous Washington DC landmark (tails, or 'T'). Out of view of the other player, you select either H or T. Once selected, you reveal your choices at the same time. If the coins match, you both win. If they do not match, you both lose.

Like I said, it's not a very exciting game. But it's a pedagogically useful game once you expand it a little bit. As I've described it, you have a 50% chance of both winning, assuming you choose randomly (Schelling effects aside). But if you have a chance to have a round of non-binding cheap talk before you scurry off to make your selection, "let's pick heads, bro," your chances of winning ~theoretically~ approach 1 (empirically, there are almost always some vandals/defectors/rogues/fools). Cheap talk is one way of coordinating activity for greater mutual benefit.

Today is the 27th of January, 2015. Meteorologists have been predicting a massive blizzard for the Northeast for the past few days now. What was supposed to be three feet in some places was more like four inches. The dismay of tobogganers is matched only by the chagrin of economists who were eager to observe the effects of Uber's plans to suspend surge pricing during the sneaux.

The idea, she is this: surge pricing entices otherwise recalcitrant drivers onto the roads. If you need a ride badly enough, one will be available. On the margin, passengers may be more willing to go out for the evening for whatever reason strikes their fancy. Do away with the surge pricing, and you should see more stranded passengers. That, or delayed service, or whatever other inconvenience you might easily imagine.

But in this case, Uber's livery service will act more like a game of matching pennies, with the announcement that surge pricing will be suspended acting like the cheap talk round. More of the rider players will select 'T' and sit it out in their apartments rather than risk being stranded without a reliable ride home. There should have been both supply-side and demand-side effects if the announcement were working properly. This storm would have been an ideal opportunity to test how stationary the demand curve would have been with enough advance warning.

Alas, it was the blizzard that wasn't. We'll have to wait for the next one to find out. Let's hope Uber has the foresight and the courage to once again put their signature pricing scheme on hold to discover whether or not folks are any good at forward induction.

Cheap talk: totes magotes euvoluntary, you guys.