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One-armed bandits and behavioral economics

In: Handbook of Behavioral Industrial Organization

Author

Listed:
  • Jason P. Berkowitz
  • Craig A. Depken II
  • John M. Gandar

Abstract

We analyze the slot machine market of South Florida to test for standard price competition. Standard Bertrand competition suggests that average price and price dispersion should both decline over time. Although casinos are differentiated by location and other amenities, if consumers demand higher jackpots over time, average prices are expected to decline. In the absence of bounded rationality or other consumer biases we would expect price dispersion to decrease as well. The empirical evidence suggests that price dispersion is increasing over time in this slot machine market contrary to standard price competition.

Suggested Citation

  • Jason P. Berkowitz & Craig A. Depken II & John M. Gandar, 2018. "One-armed bandits and behavioral economics," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 11, pages 291-306, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:16609_11
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    Keywords

    Economics and Finance;

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