THE PRICE IS RIGHT, BUT ARE THE BIDS - AN INVESTIGATION OF RATIONAL DECISION-THEORY

The television game show The Price Is Right is used as a laboratory to conduct a preference-free test of rational decision theory in an envi ronment with substantial economic incentives. It is found that contest ants' strategies are transparently suboptimal. In response to this evi dence, simple rules of thumb are developed which are shown to explain observed bidding patterns better than rational decision theory. Furthe r, learning during the show reduces the frequency of strategic errors. This is interpreted as evidence of bounded rationality. Finally, ther e is no evidence that a concern for fairness significantly alters bidd ing behavior.