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 environment with substantial economic incentives. It is found that contestants' strategies are transparently suboptimal. In response to this evidence, simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory. Further, learning during the show reduces the frequency of strategic errors. This is interpreted as evidence of bounded rationality. Finally, there is no evidence that a concern for fairness significantly alters bidding behavior. Copyright 1996 by American Economic Association.