High-Stakes Failures of Backward iinduction

Bouke Klein Teeselink; Dennie van Dolder; Martijn J. van den Assem; Jason D. Dana

doi:10.1016/j.geb.2024.07.001

High-Stakes Failures of Backward iinduction

Bouke Klein Teeselink^*, Dennie van Dolder, Martijn J. van den Assem, Jason D. Dana

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by a modified agent quantal response model that allows for limited foresight. The results suggest that many contestants simplify the decision problem by adopting a myopic representation, and optimize their chances of beating the next contestant only. In line with learning, contestants' choices improve over the course of our sample period.

Original language	English
Journal	Games and Economic Behavior
DOIs	https://doi.org/10.1016/j.geb.2024.07.001
Publication status	Accepted/In press - 2024

Bibliographical note

Publisher Copyright:
© 2024 The Author(s)

Keywords

Backward induction
Limited foresight
Omission bias
Quantal response equilibrium
Subgame perfect Nash equilibrium

Access to Document

10.1016/j.geb.2024.07.001

Persistent URL (handle)

Copy link address

Cite this

@article{0733f0dd68e74c0caf59173e7e6ade0a,

title = "High-Stakes Failures of Backward iinduction",

abstract = "We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by a modified agent quantal response model that allows for limited foresight. The results suggest that many contestants simplify the decision problem by adopting a myopic representation, and optimize their chances of beating the next contestant only. In line with learning, contestants' choices improve over the course of our sample period.",

keywords = "Backward induction, Limited foresight, Omission bias, Quantal response equilibrium, Subgame perfect Nash equilibrium",

author = "{Klein Teeselink}, Bouke and {van Dolder}, Dennie and {van den Assem}, {Martijn J.} and Dana, {Jason D.}",

note = "Publisher Copyright: {\textcopyright} 2024 The Author(s)",

year = "2024",

doi = "10.1016/j.geb.2024.07.001",

language = "English",

journal = "Games and Economic Behavior",

issn = "0899-8256",

publisher = "Academic Press Inc.",

}

TY - JOUR

T1 - High-Stakes Failures of Backward iinduction

AU - Klein Teeselink, Bouke

AU - van Dolder, Dennie

AU - van den Assem, Martijn J.

AU - Dana, Jason D.

PY - 2024

Y1 - 2024

N2 - We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by a modified agent quantal response model that allows for limited foresight. The results suggest that many contestants simplify the decision problem by adopting a myopic representation, and optimize their chances of beating the next contestant only. In line with learning, contestants' choices improve over the course of our sample period.

AB - We examine high-stakes strategic choice using more than 40 years of data from the American TV game show The Price Is Right. In every episode, contestants play the Showcase Showdown, a sequential game of perfect information for which the optimal strategy can be found through backward induction. We find that contestants systematically deviate from the subgame perfect Nash equilibrium. These departures from optimality are well explained by a modified agent quantal response model that allows for limited foresight. The results suggest that many contestants simplify the decision problem by adopting a myopic representation, and optimize their chances of beating the next contestant only. In line with learning, contestants' choices improve over the course of our sample period.

KW - Backward induction

KW - Limited foresight

KW - Omission bias

KW - Quantal response equilibrium

KW - Subgame perfect Nash equilibrium

UR - http://www.scopus.com/inward/record.url?scp=85199449844&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85199449844&partnerID=8YFLogxK

U2 - 10.1016/j.geb.2024.07.001

DO - 10.1016/j.geb.2024.07.001

M3 - Article

AN - SCOPUS:85199449844

SN - 0899-8256

JO - Games and Economic Behavior

JF - Games and Economic Behavior

ER -

High-Stakes Failures of Backward iinduction

Abstract

Bibliographical note

Keywords

Access to Document

Persistent URL (handle)

Other files and links

Cite this