The Price is Right, But are the Bids? An Empirical Investigation of Rational Decision Making
Posted: 16 Sep 1999
Date Written: August 1994
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: Suggested Citation