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

Author(s)

  • Jonathan Berk
  • Eric Hughson
  • Kirk Vandezande

    • Reference

  • American Economic Review, 86 (1996), 954-970.

    • Abstract

    We use the television game show The Price Is Right as a laboratory to conduct preference--free tests to determine whether game theory can explain the outcome of spatial competition. We show that the decision problem faced by firms in an Hotelling linear city is isomorphic to that faced by contestants in auctions on The Price Is Right. Our laboratory setting is unique---not only because successful contestants on The Price Is Right win substantial prizes, but also because the predicted outcomes do not depend on contestants' preferences. We find that contestants often bid according to strategies that are transparently sub--optimal. These results are not sensitive to cooperative play. We also find evidence, however, that learning during the game reduces the frequency of strategic errors. Last, we hypothesize that contestants use simple rules of thumb to bid. We use computer simulations to show that these rules explain observed bidding patterns better than rational decision theory does.

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