Self-Selection, Price Discrimination, and Greek Mythology

Many businesses price discriminate through customer self-selection. Before we analyze this, let’s consider a story from Greek mythology that uses self-selection as a truth-telling device.^[1] Odysseus was one of many suitors for the hand of Helen, the most beautiful mortal woman in creation. To avoid conflict, the suitors of Helen agreed that she would pick her husband, and they would all support her choice and protect the rights of the man she choose. Helen did not choose Odysseus, but Odysseus had still sworn an oath to protect her.

After she got married, the Trojans kidnapped Helen from Greece. Helen’s husband demanded that the men who had sworn an oath to protect his rights join him in a war against Troy. Odysseus did not want to keep his oath, however, for he was happily married, had an infant son, and had been told by an oracle that if he fought, he would not return home for 20 years.

When the Greeks came for him, Odysseus tried to dodge the draft by acting insane: He plowed his fields randomly. Since an insane Odysseus would be useless to their cause, almost all of the Greeks were ready to abandon Odysseus to his strange farming practices. One Greek, Palamedes, suspected that Odysseus was faking. Palamedes, however, still needed to prove that Odysseus was sane, so he took Odysseus’ infant son and put him in front of the plow. Had Odysseus continued to plow, he would have killed his son. If Odysseus really had been insane, he would not have noticed or cared about his son’s position and would therefore have killed him. Since Odysseus was rational, however, he stopped plowing and thus revealed his sanity.

Palamedes had made it very costly for Odysseus to continue to act insane. By increasing the cost to Odysseus of lying, Palamedes was able to change Odysseus’ behavior, forcing him to reveal his previous dishonesty and join the Greek military expedition to Troy. Although the Greeks did conquer the Trojans, unfortunately the oracle was right and Odysseus needed 20 years to return to his wife and son.

To summarize the game-theoretic bits of this myth: there were two types of Odysseus, sane and crazy. By placing the baby in front of the plow, Palamedes ensured that a sane Odysseus and a crazy Odysseus would take different visible actions. Palamedes used a self-selection mechanism to get Odysseus to voluntarily reveal his type.

^[1]See Felton and Miller (2002), 104–125; and Miller and Felton (2002).