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A Probability Model for Strategic Bidding on “The Price Is Right”

Author

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  • Paul H. Kvam

    (Department of Mathematics and Computer Science, University of Richmond, Richmond, Virginia 23173)

Abstract

The TV game show “The Price is Right” features a bidding auction called “Contestants’ Row” that rewards the player (out of 4) who bids closest to an item’s value, without overbidding. This paper considers ways in which players can maximize a winning probability based on the player's bidding order. We consider marginal strategies in which players assume opponents are bidding individually perceived values of the merchandise. Based on preceding bids of others, players have information available to create strategies. We consider conditional strategies in which players adjust bids knowing other players are using strategies. The last bidder has a large advantage in both scenarios because of receiving the most information from opposing players and being able to bid the minimal amount over an opponent’s bid without incurring extra risk. Finally, we measure how confidence can affect a player’s winning probability.

Suggested Citation

  • Paul H. Kvam, 2018. "A Probability Model for Strategic Bidding on “The Price Is Right”," Decision Analysis, INFORMS, vol. 15(4), pages 195-207, December.
    • Handle: RePEc:inm:ordeca:v:15:y:2018:i:4:p:195-207
    DOI: 10.1287/deca.2018.0373
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    References listed on IDEAS

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    1. Berk, Jonathan B & Hughson, Eric & Vandezande, Kirk, 1996. "The Price Is Right, but Are the Bids? An Investigation of Rational Decision Theory," American Economic Review, American Economic Association, vol. 86(4), pages 954-970, September.
    2. Quang Vuong & Isabelle Perrigne, 2007. "Identification and Estimation of Bidders' Risk Aversion in First-Price Auctions," American Economic Review, American Economic Association, vol. 97(2), pages 444-448, May.
    3. Healy, Paul & Noussair, Charles, 2004. "Bidding behavior in the price is right game: an experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 231-247, June.
    4. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-883, December.
    5. Bennett, Randall W. & Hickman, Kent A., 1993. "Rationality and the 'price is right'," Journal of Economic Behavior & Organization, Elsevier, vol. 21(1), pages 99-105, May.
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