Business Life: Game shows
First published in Business Life magazine, November 2007
I remember Saturday evenings when I was a boy, curled up in a towel after bath time to watch game shows such as “The Price is Right”. Little did I know it, but those Saturday evenings were preparing me for life as an economist.
Economists have theories about how people behave, but those theories are hard to test in the muddle of the real world. And laboratory experiments may be no better, because the stakes are too trivial to see how people act under pressure.
That is where the game shows come in. Like real life, game shows are often played for high stakes. But like the laboratory, the rules are simple and the experiment is repeated over and over again.
In one early piece of game show research, economists Jonathan Berk, Eric Hughson and Kirk Vandezande showed that contestants in “The Price is Right” made transparent mistakes but learned from them.
Four contestants would in turn name a price for some household object such as a toaster. The contestant who got closest to, but not over, the correct retail price would win. The other contestants would get another chance.
If you’re smarter than the average contestant you’ll see that the fourth person to bid has an advantage. Since you want to be closest, but not too high, the best strategy is to guess just one pound higher than one of the other contestants (or zero, if you think they’re all too high). Not many contestants did this, but once somebody figured it out, the others were more likely to use the tactic in later rounds.
The economics of quiz shows hit the big time with Steven Levitt, now famous as the co-author of Freakonomics. Levitt tried to understand what was behind discrimination in the job market: did people simply dislike ethnic minorities or the elderly? Or did they believe them to be less competent?
For the answer, he looked to “The Weakest Link”, in which contestants vote for other contestants to be excluded. The best approach is to vote off weak players early on, because they’re costing everyone money – but later, to vote off strong players, because they are the most dangerous competition.
Levitt showed that elderly players tended to be voted off at any stage, suggesting a pure dislike for them. Hispanic players were likely to be voted off early but kept on later in the game, implying that other contestants thought they weren’t very smart.
The game show boom in economics is still going. I’m aware of eight economists who’ve studied “Deal or No Deal”. If only I’d been thinking like an economist when I was younger, I could have beaten them all to it.