You and your family are booked on an American Airlines flight from Florida to Chicago. The weather is bad in Chicago – freezing rain is forecast. You sign up for email alerts from AA, warning you if the flight is cancelled. If you are warned of a delay or cancellation, you can hang out longer at the beach, stay an extra day etc. You get an email 2.5 hours before departure telling you everything is on schedule. What should you infer from this?
AA knows the probability that the flight is cancelled, you do not. If the probability it is cancelled is close to zero, they have the incentive to tell the truth: this way the trade is executed in timely manner, just the way you and they want it. There is no hassle with rebooking, paying for an extra day of hotel for them or you. If the flight is very likely to be cancelled, they have good incentives to tell you. Then, they can rebook you without you coming to the airport and getting upset. You will end up paying for the extra night of hotel if you decide to rebook for the next day etc.
The difficulty is when the chance of cancellation is somewhere in the middle. If you are anything like me, you want to know when you are in this scenario. Then, you can decide whether to turn up at the airport or fly the next day. But the airline might have different incentives. They want you rebook you to fly via Dallas with a five hour wait at DFW. This might be close to zero marginal cost for them (if seats are available) but high cost to you. But once you are at the airport, the cost of getting a hotel and rental car and flying the next day are higher. Plus since the airline has given you an alternative to your cancelled flight, you’re going to have to pay for the extra night’s stay. So, your preferences differ from the airline’s and they have an incentive to lie to you. When the probability of cancellation is intermediate, the airline has an incentive to pretend it is low.
So, the “all clear” message signals either that all is clear or that the flight may be cancelled with some probability. This is what theory would predict. But do airlines actually practice this subterfuge? It sure feels like it when you are stuck at DFW for five hours! But some real data would be great……
Cheap Talk 
3 comments
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January 19, 2011 at 4:28 pm
Brent
I always use a flight tracking tool to find where my scheduled plane is. For example, say I’m on a flight from Pensacola to DFW. The plane I’ll be taking for that leg first has to fly various routes, the most immediate before my flight being Charlotte to Pensacola. I’ll check to see where that plane is, not whether the flight is being reported as on time. You can quickly deduce in most cases whether or not you can believe what the airline is telling you.
January 20, 2011 at 12:42 am
gradstudent
can we have a pointer to this flight tracking tool? it gives you exact locations of the physical plane?
January 20, 2011 at 9:49 am
Brent
I like flightstats and flightaware. Each has their own way of delivering information. I tend to use flightaware more, but both do a good job.