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High-stakes failures of backward induction

Author

Listed:
  • Klein Teeselink, Bouke
  • van Dolder, Dennie
  • van den Assem, Martijn J.
  • Dana, Jason D.

Abstract

We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by a modified agent quantal response model that allows for limited foresight. The results suggest that many contestants simplify the decision problem by adopting a myopic representation, and optimize their chances of beating the next contestant only. In line with learning, contestants' choices improve over the course of our sample period.

Suggested Citation

  • Klein Teeselink, Bouke & van Dolder, Dennie & van den Assem, Martijn J. & Dana, Jason D., 2026. "High-stakes failures of backward induction," Games and Economic Behavior, Elsevier, vol. 157(C), pages 418-439.
    • Handle: RePEc:eee:gamebe:v:157:y:2026:i:c:p:418-439
    DOI: 10.1016/j.geb.2024.07.001
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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