Why are people getting worse at The Price is Right?

Americans are worse at The Price Is Right than they used to be. On the game show, which has been running since 1972, four contestants are asked to guess the price of consumer products, like washing machines, microwaves, or jumbo packs of paper towels. The person who gets closest to the actual price, without going over, gets to keep playing and the chance to win prizes like a new car. In the 1970s, the typical guess was about 8% below the actual price. People underestimate the price by more than 20% in the 2010s.

This finding comes from recently released research by Jonathan Hartley, a data analyst currently studying public policy at Harvard University. A longtime fan of the show, Hartley was inspired to conduct his research after reading a research paper from 1996 that reveals contestants don’t use optimal bidding strategies—they too rarely bid just a dollar over the highest previous bid—and is one of the early economics papers to show how people could be irrational. Hartley wondered what else the data might show. He found that the accuracy of  people’s guesses sharply decreased from the 1970s to the 2000s, and then stabilized in the 2010s.

And why? There are three main hypotheses:

First, inflation in the US was much higher and much less stable in the 1970s and 80s. When inflation is high and variable, people become more attentive to prices, noticing they are paying more for goods than before.

Second, the rise of e-commerce may have made people less sensitive to price. Research by the economist Alberto Cavallo finds that online competition has made prices more similar across sellers, both online and off. As a result, people may feel less of a need to do price comparisons.

Third, there are more products than ever. There are 50 times as many products at a grocery store than 80 years ago, according to the economist James Bessen.

Here is the full 2019 piece by Dan Kopf, via Rasool Somji.

Comments

When I shop with cash I keep a running tab in my head as I shop. That way I know I have enough cash. When I pay with a card, usually a debit card, I don't keep a tab, but a rough guess from experience, which is usually within 20%. Close enough.

When you pay with debt, the price might as well be free. In Donald Trump's case, things he buys with debt turned out to be free, or he argues will be free in the future. Ie, the ultimate Constitutional bailout, repudiation of debt by fiat, mostly bankruptcy court technocrat, but also a Congressional or executive claim of no standing for debt holders, such as deferred compensation (pensions).

The rent for that large space he occupies in your head is certainly free.

Did I say large, I meant yuuuuge!

Not only Huuuuggeee, It's CAVERNOUS! GIGANTIC! TITANIC! Trump should charge him with rent. But of course Dems, Libs and Leftist always want it FREE! That's what we call PARASITES.

BOOOOOOOOOOOOOOM go the luneytoons heads !!!!!!!!

Yes, now this is serious stuff I follow this blog for!
Amazing! HAHAH ;D --Not sarcasm!

Also it could also express something I am deeply considering. Effort.

Effort is completely variable across industries. For example, global music generate around 15 billion USD in 2015 as did Frito Lay. Which takes more effort?

Very cool.

IE effort recently is going up per dollar earned.

They left out what to me is the most obvious explanation: why bother memorizing prices when you can get a sample of prices online in a few seconds?

IOW: I can almost guarantee that people memorize fewer phone numbers now than they used to. And so it's not surprising that they memorize or track fewer prices.

This is a really valid point and I would like to see more studies about it. Has the ubiquitous availability of information online in some way made base line humans dumber / less knowledgeable?

+1

I know for a fact that I memorize fewer phone numbers now than I used to. I doubt I'm all that unique.

I only know two phone numbers. I vaguely know prices, probably within 10%. Different state sales taxes are quite varied at this point. That could be a factor.

I also wonder what 'the price' presented on the show is (msrp, I'm assuming) and how likely it is to be priced the same at various retailers. Do Walmart and Safeway usually have the same price for a pack of paper towels?

Failing memory?

https://marginalrevolution.com/marginalrevolution/2019/10/tuesday-assorted-links-233.html

+1, both posts are referencing the same paper

Not the same paper. This was updated 2 February 2020.

What does price mean?

Prices are all over the place these days. Depending on where the washing machine was made (China, Mexico, Europe, North America) and if the darn thing has Bluetooth, satellite radio, and can surf the Internet, the price range can get very wide. Combine this elaborate feature set with refrigerators, cars, phones, mattresses, etc and it is reasonable that prices are virtually inestimable for the most people.

Exactly. In the abstract, prices may be more similar across sellers, but not the final price that is paid after using loyalty cards/programs, various discount methods (online promotions for example), and the fact that an Amazon price can simply change by using two different browsers, one without any history of shopping at Amazon, which will often result in a better price for the 'new' customer.

The Price is Right uses MSRP, which in 1973 was the defacto retail price.

There were local and federal laws which limited price competition in 1973 but are not in force today. There is now price competition everywhere in both the brick and mortar and online spaces. For example, the same jar of pasta sauce will have different prices at Walmart, Kmart, your local grocery store, on Amazon.com and Instacart. 5 different prices at 5 different retailers.

Kopf should have compared guesses to prices actually paid in the real world, not the show-quoted MSRPs.

Oops, swap "TARGET" for "KMART" above ...

I came to make a similar point. The majority of products, outside of basic necessities are almost always on sale now. The actual MSRP is meaningless when stores have a 20% or 30% sale every month or so. I'm more likely to know the lowest price this year than I am to know the base price. Add to this the extreme price range based on features and brand and you have a market where price is extremely variable in a way it wasn't 50 years ago.

I think this is a human capital story: the number of smart people that watch and care about the The Price is Right has declined, as there are many more interesting shows and things to do these days. As a result, the candidates selected to go on are worse at guessing than they used to be.

My guess is that purchasing decisions for household products were important because they took up a larger percentage of income. And since credit wasn't available like it is today, folks had to put aside money and save up, while keeping those purchase prices well in mind.

The contestants are selected from fans of The Price Is Right, not from fans of AGT and Masked Singer.

I think this is the right answer. Back in the 70s this show was one of three shows on at a given time. When I was 7 or 8 I saw it a lot, learned the strategic tactics (everyone knew the advantage of bidding $1 more). Prices of cars were all under $10,000. There was a lower variety of products and brands available back then as well, so there were probably only about 100 common products to know the prices of.
There are now undoubtedly fewer people watching the show, their IQs are probably lower than decades ago, they might just be walking in off the street with less preparation on average.
In any case, too many variables have changed over the years for some paper to be able to isolate one variable as a cause.

The real explanation is somewhat the reverse. A smart obsessive watcher named Terry Kniess made an absolutely perfect bid in 2008 down to the cent by memorizing prices, and they made the show tougher by using a wider variety of products and prices. Of course people would get less accurate in the 2010s after the game show runners made it tougher.

The oddity, though, is that guess accuracy actually stabilized after that they changed the game, which implies that the changes did not have the intended effect. But there was a big step change after 2008, which at least suggests that there's a reason why the 2010s data is different.

Oh, Christ, it's a game! There are no losses at stake. So, over time people seem to care less. They be richer; they no care.

All in all, so what?

It is a data set, and these days, economists need data sets like a vampire needs fresh blood.

Smith, Ricardo, Marx didn't need no stinking data sets, but they also did not sell themselves on the job market.

Yes: Adam, David, and Charlie looked out the window, and that was the raw material for their thought, and it was their data set!

They weren't interested in datasets, they were interested in principles. In the case of Adam Smith, in both major meanings of the term. (As for Marx, the less said in this regard the better, as it is an endless discussion whether Marx is responsible for the actions of people like Lenin or Trotsky who made Marxism murderous.)

Data is important, but to think that Philosophiæ Naturalis Principia Mathematica required datasets is to miss the point. Something that modern economists often seem extremely skilled in, as the remark about Smith attempts to highlight. Smith was a moral philosopher, and saw what we consider economics within that framework. He likely would have rejected what the historic marginal revoluation represented.

His Investopedia article provides a good summary in this regard -

Smith is most famous for his 1776 piece, "The Wealth of Nations," but his first major treatise, "The Theory of Moral Sentiments," was released in 1759, and many of its ideas are still practiced today.

Some may be surprised to learn that in this book, Smith, who is also known as the “Father of Capitalism,” discusses charity and human ethics extensively. While much of the philosophy behind Smith's work is based on self-interest and maximizing return, "The Theory of Moral Sentiments" was a treatise about how human communication relies on sympathy. The book extensively explored ideas such as morality and human sympathy. In the book, Smith argued that people are self-interested but naturally like to help others. He introduced the concept of an “inner man” and an “impartial spectator” responsible for guiding human action. Both help to reconcile passion with reason, which is a basis for economic systems and provide a basis for the creation of institutions within human society. The book also includes elements of social psychology along with our instinct for self-preservation. The former is mainly expressed through a shared morality and sense of justice.

All correct, but it's gotta have a connection with reality. All three classicals had that desire, though one of them turned out incredibly, incredibly wrong.

Same in physics. We are not taught the losers anymore.

An answer to the question of how to find the right ideas which will survive confrontation with reality no one knows. Induction -- all those data sets -- we can legitimately doubt will give all the answers all on their own. One needs some theory to make induction convincing.

Of course we are still taught the losers. Newton was wrong, but we simply ignore that because his work is still useful.

I wonder if the failure to use optimal bidding strategy is because people don’t want to seem like assholes? That’s obviously a ‘dick move’ as the kids say.

Then again, why does the show let them bid in sequence rather than simultaneously or have them write it down at the same time like they do in final jeopardy?

If I recall, Price is Right uses list prices, e.g., MSRP. Maybe, there is a larger gap nowadays between list prices and actual transactions prices due to Amazon and other online retailers?

The first two offered hypotheses don't make sense to me. I would think it would be easier, not harder, for people to remember stable, consistent prices than to remember prices that change all the time. Is it easier to remember your nominally sticky wage or the current price of AAPL stock, which changes everyday? What about relatively sticky house prices vs. fluctuating interest rates and REIT prices?

An increased difference between MSRP and market seems far and away the most plausible answer. The fact that the researchers fail to mention it, let alone measure it, would seem to call their whole project into question.

And the supposition that people are more accurate in estimating prices when prices are changing more rapidly seems faintly ridiculous.

If you did a "Price Is Right" for healthcare, nobody would get the right answer. Even if you had insurance execs, doctors, hospital administrators or pharma salespeople on as guests. "The actual retail price of a new hip is ...."

Are you arguing that people are better at estimating car prices based on their guesses of prices of fender prices, electric motor prices, door handle prices?

I find it odd that economists use one model for paying for health care than paying for cars and trucks.

Why don't economists call for cars and trucks to be priced by part and labor so the buyer can shop around for parts and labor? Ie, why not call for trucks being bought so you can buy the drive train from Tesla, the F-150 truck body from Ford, and the labor for assembly from BMW to get both the highest features, quality, and the lowest price.

I argue health care should be sold like cars, one price for health care, with the seller figuring out all the components and labor that goes into it. In other words, HMOs.

Price is Right is one of the least intelligent game shows on TV. At least Jeopardy and Wheel of Fortune require some modicum of thought to advance.

The price you're guessing isn't the price you'd pay. The show asks you to guess MSRP. In the age of Amazon, many things never retail at this price so why would you bother to learn it?

Indeed, the base price on most consumer goods has become meaningless

What about "consumer goods are a smaller and smaller portion of the average household's expenditures, thus it is rational to pay less attention to prices"

Among many other channels, I suspect part of the problem is that we make major and even minor purchases less frequently.

Cars, for instance, have dramatically increased how many miles they can run without serious issues. Most televisions in my anecdotal experience are replaced not when they fail anymore, but when somebody decides they want a larger one with better resolution. Many other things, like cellphones, have been bundled into service contracts so the up front price is far less relevant. Even for small scale things, like paper towels, we can do things like set up a recurring purchase or get ever larger jumbo packs from Sam's Club or the like.

And lest we forget, our worlds are shrinking. A single adult living alone purchases less stuff than a married household with two kids. Having smaller, later families, means fewer birthdays, wedding showers, and the like but also fewer times discussing with the (grand)kids about purchasing a car or stove.

It would not surprise me at all if the average person today deals with half as many durable goods purchasing decisions today as they did 40 years ago.

Solving the Monty Hall problem was far more interesting than this post.
https://en.wikipedia.org/wiki/Monty_Hall_problem

Fourth, I suggest that the proliferation of price markdowns has affected people's ability to guess prices. Retail has gone absurd:
- Everything is "on sale" all the time. The shirt that was $40 yesterday is now "HALF OFF at the low, low price of $40, was $80"!
- "Take 50% off, then take 30% off" most people might think that's an 80% discount, but it's really only 65%
- The sheer amount of modifiers applied to any retail purchase makes it almost impossible to know what the final cost will be until you get to the checkout.
- The most bizarre was when Sears would apply discounts on my order at the checkout. A pair of pants that I pulled off the rack marked $30 would suddenly drop to $20 at checkout, with no sale display. It was a nice surprise for me, but it's also no surprise that Sears went bankrupt.

Or is it the price with my Kroger plus card or without
Or does my store have the 32 ounce but the one their guessing on is 30 ounce
Or is it with my auto refresh with amazon
Or do I shop at wholefoods but their quoting the walmart price

My favorite example of this was a sushi shop I used to pass that had a permanent half off sign. They literally had a menu with one price, but never actually charged that price. It boggled my mind.

I think a lot of this involves just how different life was in the 1970s and 80s. People younger than me don't have a good understanding of how prevalent couponing was back then. They've never seen anyone, except possibly a particularly eccentric grandparent, build the value of a product's warranty into their price evaluation, or shop around for the product with the best available warranty. (My aunts and uncles had boxes in which they kept all their product warranties, no matter how old, and whenever anything broke down, that's the first place they'd look.)

People just have no idea how price minimization was basically a full-time job back then. I don't know if this is because there was a more "home economics culture" back then, or if it has something to do with the fact that nobody is a stay-at-home parent anymore, or if it's just because online shopping has eliminated the kind of arbitrage opportunities that coupons, warranties, and sale pricing used to provide. Maybe it's a combination of all of those things.

This was my first thought, where have all the homemakers gone?

Though cheapness is not my mother's natural state of being - at all - and she never went as far as green stamp booklets, in the 70s even she certainly clipped the Sunday coupons, sometimes frequented the day-old bread store, served us Spam, collected glassware from the gas station, and sewed her own curtains (but definitely not from pride in being crafty; to one day be able to pay for beautiful things was the great goal).

But Matt's point, above, is well-taken. I would not otherwise be familiar with the price of concert tickets, as I dislike live music unless it is outdoors and I can move toward and away from it freely; but I see on NextDoor folks constantly putting up for sale the concert tickets they can't after all use due to a conflict - this pair of tickets to see Michael Buble can be yours for the face value of $250 (or Adele for $1500, etc.). I am thinking these people are not driving to different stores to get the best price on ground chuck or laundry detergent, as people used to do!

Plus: is there a bigger spread in the price of appliances than there used to be? I mean, you can buy a basic fridge for $400 or $500, but you can also buy one that has running lights like a sedan, and doors-within-doors, for your secret stash of condiments, and a gazogene, that is more like ... $3500? Or more? And there are models at all the price points in between.

Price comparison is absurdly easier online than in person.

But, as it's become easier for consumers to compare prices, merchants have become endlessly creative in applying price discrimination.

In its simpler form, it means that you not only get a discount if you have a Kroger's loyalty card but can get a discount on top of that discount if you go online and click a "digital coupon," The price difference may be in the order of 2:1, yet the required behaviors to minimize the price are sufficiently formidable that few will do so.

Or, the proliferation of hidden and not-so-hidden junk fees, which simply didn't exist in 1973, and which make it nearly impossible to know what a contracted-for service (e.g., cable or satellite TV, contracted cellphone service) will actually cost until after you've bought it.

Of course, there are good reasons why merchants love price discrimination, just as there are good reasons consumers might like an app that minimizes what they pay with minimal effort.

The result produces counter-counter-counter measures to counter the counter-counter measures; it comes to resemble Spy vs Spy from an old Mad Magazine, or an anti-anti-missile-missile-missile arms race (etc). Indeed, it might make one nostalgic for a time when MSRP was at or close to the actual price, and everyone (more-or-less) paid the same price for 'most everything.

It’s because we use credit/debit cards these days, not cash. While it *shouldnt* make a different economically, it obviously does. When you can pay with everything at the end woth a simple swipe you’re more likely to just glance at the price and seem whether it’s “acceptable” or not. When you pay with cash that you have to count out, you’re going to be more attuned to the actual prices of each item, I.e. counting them out rather than thinking “acceptable or not.”

When I used to watch The Price is Right, the price they used was the Manufacturer's Suggested Retail Price. But that "suggestion" is generally unenforceable and would probably be an antitrust violation if the manufacturer tried. Actual prices are usually lower. E.g., did you pay the "sticker price" for the vehicle you are driving now? Perhaps the rise of Walmart and online shopping means that the prices people pay are now at a greater discount from MSRP than they used to be. Federal law has also, on balance, make retail price maintenance harder since 1975.). So we would expect contestants to underbid a greater amount than they used to.

I see BC, Tom T., and Joe beat me to it.

It may well be an antitrust violation for a supplier to enforce retail price maintenance, but I doubt it's all that unenforceable. When was the last time you saw a discount on a Hallmark card, or a Disney figurine?

How is the coefficient of variation of prices doing? My sense is that price and revenue optimization has widened the spreads, so maybe a lower average bid is optimal?

Could there be a selection bias?

The article doesn’t in fact establish that people are getting worse at the price is right. It shows that people are underbidding by more and more. However, the winning bid always has to be equal to or lower than the actual price. Underbidding is correct strategy!

You could argue that people are underbidding too much for optimality, but this article does not make that argument.

I also wonder what 'the price' presented on the show is (msrp, I'm assuming) and how likely it is to be priced the same at various retailers. Do Walmart and Safeway usually have the same price for a pack of paper towels?

I am surprised that nobody is stating the obvious counterfactual: namely, that the game show producers are getting increasingly efficient at coming up with products that are intentionally designed to be misleading on price.

If you watch the show, they often have items the average household wouldn't buy; the kinds of things you'd buy if you were an upper-middle class household or richer, such as electronic wine uncorkers.

They also often engage in visual deception, having for instance a laundry detergent that is half the normal size, but is intentionally placed so that there's no visual context to know that it is much smaller than normal. Contestants are often bidding 15-20 feet or more away from the products.

Then they will have knick-knacks or gimmicky items, the kind of thing you'd buy off of an infomercial, which don't really have a proper economic value because it's just "what can I convince some rube to pay for this?" And for these items, differing brands will often sell almost identical products with wildly varying prices.

Finally, their products seem to be based on California pricing, which can diverge from much of the rest of the country.

When inflation is high and variable, people become more attentive to prices, noticing they are paying more for goods than before.

When inflation is high and variable the price of the goods changes in respect to the value of the money, not the goods. That's pretty much the definition of inflation.

Certainly Terry Kneiss has to be mentioned. He figured out how to beat the system on The Price is Right, won with an exact bid in 2008, and they made it tougher. They both use a wider variety of products and do a few other things to make it harder to guess. 2010s data isn't strictly comparable to earlier data.

That said, he was the only person obsessive enough to be perfect, but still, you can't ignore the changes in the show itself.

who cares ........... I to busy admiring Rachel's wheels !!!

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