High-Stakes Failures of Backward Induction: Evidence from "The Price Is Right"

38 Pages Posted: 14 Jun 2022 Last revised: 29 Jun 2022

See all articles by Bouke Klein Teeselink

Bouke Klein Teeselink

Yale School of Management

Dennie van Dolder

University of Essex - Department of Economics

Martijn J. van den Assem

Vrije Universiteit Amsterdam

Jason Dana

Yale School of Management

Date Written: June 29, 2022

Abstract

We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by an agent quantal response model with limited foresight, where a sizable proportion of the contestants myopically consider the next stage of the game only. In line with learning, the quality of contestants' choices improves over the course of our sample period.

Keywords: backward induction, limited foresight, omission bias, quantal response equilibrium, subgame perfect Nash equilibrium

JEL Classification: C73, D01, D91

Suggested Citation

Klein Teeselink, Bouke and van Dolder, Dennie and van den Assem, Martijn J. and Dana, Jason, High-Stakes Failures of Backward Induction: Evidence from "The Price Is Right" (June 29, 2022). Available at SSRN: https://ssrn.com/abstract=4130176 or http://dx.doi.org/10.2139/ssrn.4130176

Bouke Klein Teeselink (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

Dennie Van Dolder

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Martijn J. Van den Assem

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Jason Dana

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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