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Does Hollywood Make Too Many R-Rated Movies?: Risk, Stochastic Dominance, and the Illusion of Expectation

46 Pages Posted: 9 Jul 2000  

Arthur S. De Vany

University of California

W. David Walls

University of Calgary - Department of Economics

Date Written: June 5, 2000

Abstract

This paper estimates the probability distributions of budgets, revenues, returns and profits to G-, PG-, PG13-, and R-rated movies. The distributions are non-Gaussian and show a self-similar stable Paretian form with non-finite variance and non-stationary mean. We stochastically rank these distributions to investigate film critic Michael Medved's argument that Hollywood overproduces R-rated movies. The evidence shows that the industry's critics and its shareholders can agree that Hollywood does make too many trashy movies. The profit distributions have aysmmetric tails which means that Hollywood could trim its "downside" risk while increasing its "upside" possibilities by shifting production dollars out of R-rated movies into G, PG, and even PG13 movies. Stars who are willing to appear in edgy, counterculture R-rated movies for their prestige value may induce an "illusion of expectation" leading a studio to "greenlight" movies that have biased expectations.

JEL Classification: L82

Suggested Citation

De Vany, Arthur S. and Walls, W. David, Does Hollywood Make Too Many R-Rated Movies?: Risk, Stochastic Dominance, and the Illusion of Expectation (June 5, 2000). Available at SSRN: https://ssrn.com/abstract=231635 or http://dx.doi.org/10.2139/ssrn.231635

Arthur S. De Vany (Contact Author)

University of California ( email )

3151 Social Science Plaza
Institute for Mathematical Behavioral Sciences
Irvine, CA 92697-5100
United States
949-509-9207 (Phone)

HOME PAGE: http://aris.ss.uci.edu/econ/personnel/devany/devan

W. David Walls

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403.220.6761 (Phone)

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