Wednesday, May 2, 2012

Game Theory and Renting a House

The most recent chapter of my economics class covered the different types of competition that exists between the two pure forms of perfect competition and monopoly. Requisite to the topic was a discussion on game theory, which seems to have an application in a housing dilemma we are facing.

Basically, game theory is a way to observe the behavior of participants in an oligopoly, where there are few producers competing for greater market share--fundamentally what our entire upper echelon of our economy is. However, it has applications to any situation in which 2 parties with opposing interests have interdependent decisions.

We are in a house, rented at a low rate, but not maintained well by the owner. Our lease is up in roughly 7 weeks but renews monthly at that point, terminable by either party with 30 days notice. Rentals are hard to come by in this area, and finding a house of similar size at a comparative rate will be difficult.

Meanwhile, this street has had several houses demolished over the last year or two to make room for more parking for the nearby college.

Does the landlord have plans to sell this house for potentially more than it is worth as a residence when our lease is up? If so, can we find an alternative home with just 30 days notice? Will an extra 3 weeks of searching give a significant possibility of finding somewhere else to live with little change to our expenses?

If the landlord does not intend to sell, do we unnecessarily seek out a new place at a potentially greater expense? Or, do we risk being homeless after 30 days of fruitless searching should the assumption that he does not intend to sell is incorrect?

Our dominant strategy? We're moving (again)! Don't know where, don't know when, but why is clear enough. Stay tuned for another adventure...

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