The Price is Right, But are the Bids? An Empirical Investigation of Rational Decision Making

Posted: 16 Sep 1999

See all articles by Jonathan Berk

Jonathan Berk

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

Kirk E. Vandezande

Schulich School of Business

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: August 1994

Abstract

We conduct an empirical test of rational decision theory using the auction that a contestant must win to advance on the television game show, The Price Is Right. This setting is unique---not only because successful contestants 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. We also find some 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.

JEL Classification: D44, C90

Suggested Citation

Berk, Jonathan B. and Vandezande, Kirk E. and Hughson, Eric N., The Price is Right, But are the Bids? An Empirical Investigation of Rational Decision Making (August 1994 ). Available at SSRN: https://ssrn.com/abstract=5592

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

Kirk E. Vandezande

Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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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