Can Boundedly Rational Agents Make Optimal Decisions? A Natural Experiment

30 Pages Posted: 10 Oct 2008 Last revised: 11 Sep 2013

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: April 7, 2006

Abstract

The television game show The Price Is Right is used as a laboratory to test consistency of suboptimal behavior in an environment with substantial economic incentives. On the show, contestants compete sequentially in two closely related games. We document that contestants who use transparently suboptimal strategies in the objectively easier game use the optimal strategy almost all of the time in the game that is much more difficult to solve. Further, there is no consistency in the mistakes that are made in the two games. One cannot predict, conditional on play in one game, whether play in the other game will be optimal. The results have implications for the consistency of behaviorally based economic theory that relies on evidence derived in a laboratory setting.

Suggested Citation

Berk, Jonathan B. and Hughson, Eric N., Can Boundedly Rational Agents Make Optimal Decisions? A Natural Experiment (April 7, 2006). Robert Day School of Economics and Finance Research Paper No. 2008-7. Available at SSRN: https://ssrn.com/abstract=1281150 or http://dx.doi.org/10.2139/ssrn.1281150

Jonathan B. Berk (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3664 (Phone)

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