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The Price Is Right, but Are the Bids? An Investigation of Rational Decision Theory

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Author Info
Berk, Jonathan B
Hughson, Eric
Vandezande, Kirk
Abstract

The television game show The Price Is Right is used as a laboratory to conduct a preference-free test of rational decision theory in an environment with substantial economic incentives. It is found that contestants' strategies are transparently suboptimal. In response to this evidence, simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory. Further, learning during the show reduces the frequency of strategic errors. This is interpreted as evidence of bounded rationality. Finally, there is no evidence that a concern for fairness significantly alters bidding behavior. Copyright 1996 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 86 (1996)
Issue (Month): 4 (September)
Pages: 954-70
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Handle: RePEc:aea:aecrev:v:86:y:1996:i:4:p:954-70

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  1. Antoni Bosch-Domenech et al., 2002. "One, Two, (Three), Infinity, . . . : Newspaper and Lab Beauty-Contest Experiments," American Economic Review, American Economic Association, vol. 92(5), pages 1687-1701, December. [Downloadable!] (restricted)
  2. Pavlo Blavatskyy & Ganna Pogrebna, 2006. "Testing the Predictions of Decision Theories in a Natural Experiment When Half a Million Is at Stake," IEW - Working Papers iewwp291, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  3. Egil Matsen & Bjarne Strøm, 2006. "Joker: Choice in a simple game with large stakes," Working Paper Series 8307, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
  4. Gee, C., 2007. "Risky Choice and Type-Uncertainty in "Deal or No Deal?"," Cambridge Working Papers in Economics 0758, Faculty of Economics (formerly DAE), University of Cambridge. [Downloadable!]
  5. Pavlo Blavatskyy & Ganna Pogrebna, 2006. "Loss Aversion? Not with Half-a-Million on the Table!," IEW - Working Papers iewwp274, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  6. Rafael Tenorio & Timothy N. Cason, 2002. "To Spin or Not to Spin? Natural and Laboratory Experiments from "The Price is Right"," Economic Journal, Royal Economic Society, vol. 112(476), pages 170-195, January. [Downloadable!] (restricted)
  7. Martin Lettau & Harald Uhlig, 1999. "Rules of Thumb versus Dynamic Programming," American Economic Review, American Economic Association, vol. 89(1), pages 148-174, March. [Downloadable!] (restricted)
  8. Pavlo Blavatskyy & Ganna Pogrebna, 2006. "Risk Aversion When Gains Are Likely and Unlikely: Evidence from a Natural Experiment with Large Stakes," IEW - Working Papers iewwp278, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  9. Sjögren Lindquist, Gabriella & Säve-Söderbergh, Jenny, 2006. "Testing the rationality assumption using a design difference in the TV game show 'Jeopardy'," Working Paper Series 9/2006, Swedish Institute for Social Research. [Downloadable!]
  10. John A. List, 2006. "Friend or Foe? A Natural Experiment of the Prisoner's Dilemma," NBER Working Papers 12097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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