Applying Game Theory to Explain Informal Settlements

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Over the past two hundred years, urban landscapes have changed dramatically as new urban typologies emerged. Of these urban landscapes, informal settlements (IS) are one of the most globally recognizable and widespread urban-scale typologies. Despite consensus that IS maintain marginalized populations in precarious living conditions, they continue to be ubiquitous throughout the world: an estimated one billion people live in marginalized communities. This article utilizes Game Theory (GT) to explain why IS are tolerated, if not embraced, by three primary actors: State, private sector (PrS), and IS residents. The essay briefly explains salient IS urban characteristics and relevant GT concepts. Then, using GT, the essay suggests that IS endure because they produce Nash equilibria (semi-stable) outcomes if all players achieve some desirable payoff. Ultimately, the essay proposes a replicable theoretical framework that can help urban policymakers understand IS formation and persistence as a function of actor incentives, actions, and payoffs.