Estimating Structural Models of Equilibrium and Cognitive Hierarchy Thinking in the Field: The Case of Withheld Movie Critic Reviews

Management Science, Forthcoming

44 Pages Posted: 22 Jan 2020

See all articles by Alexander L. Brown

Alexander L. Brown

Texas A&M University - Department of Economics

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Dan Lovallo

University of Western Australia

Date Written: March 18, 2012

Abstract

Film studios occasionally withhold movies from critics before their release. Since the unreviewed movies tend to be below average in quality, this practice provides a useful setting in which to test models of limited strategic thinking: Do moviegoers seem to realize that no review is a sign of low quality? A companion paper showed that in a set of all widely released movies 2000-09, cold opening produces a significant 20-30% increase in domestic box office revenue, which is consistent with moviegoers overestimating quality of unreviewed movies (perhaps due to limited strategic thinking). This paper reviews those findings and provides two models to analyze this data, an equilibrium model and a behavioral cognitive hierarchy (CH) model that allows for differing levels of strategic thinking between moviegoers and movie studios. The behavioral model fits the data better, as moviegoer parameters are relatively close to those observed in experimental subjects. These results suggests that limited strategic thinking may be a better explanation for na─▒ve moviegoer behavior than equilibrium reasoning is.

Keywords: decision analysis, game theory, economics, econometrics, marketing, competitive strategy, bounded rationality, psychology

JEL Classification: C51, D82, L82, M31

Suggested Citation

Brown, Alexander L. and Camerer, Colin F. and Lovallo, Dan, Estimating Structural Models of Equilibrium and Cognitive Hierarchy Thinking in the Field: The Case of Withheld Movie Critic Reviews (March 18, 2012). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2126774

Alexander L. Brown (Contact Author)

Texas A&M University - Department of Economics ( email )

4228 TAMU
College Station, TX 77843-4228
United States
979-862-8084 (Phone)
979-847-8757 (Fax)

HOME PAGE: http://econweb.tamu.edu/abrown/

Colin F. Camerer

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Dan Lovallo

University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

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