Is Your Price Right? Consumers May Pay Closer Attention to Prices in Tougher Economic Times
The Price is Right, in its current version, has been on the air since 1972. It's closing in on 10,000 episodes. Surprisingly, the popular game show hasn't changed much over the years. The intro is the same. So is the colorful 70s decor. Contestant behavior, however, has changed significantly. Those changes might have important lessons for how consumers make buying decisions based on prices.
A recent study looked at how contestant behavior changed on The Price is Right from 1972 to 2019, analyzing 4,937 episodes. Jonathan Hartley, an economics researcher at the Harvard Kennedy School, found that contestants have increasingly underestimated the price of items over time. Contestants did bid closer to the actual price following the 2008 recession, though, suggesting that the health of the economy could influence how closely consumers pay attention to prices. This information could be particularly timely given the gloomy outlook for the world economy in 2020.
Two concepts are important to define: price salience and rational inattention. Price salience refers to the importance of price in consumer decisions. Higher price salience means prices play a bigger role in buying decisions. Rational inattention occurs when the cost of information is greater than the value of that information. So, consumers may not pay attention to prices because the information is too complicated or simply not relevant to them.
The results of the study suggest that price salience went down and rational inattention went up. This suggests that over the last 47 years, prices have generally become less important to consumers' buying decisions. At the same time, consumers have also paid less and less attention to prices. This could be due to many factors.
First, the economy is different than it was in 1972. War, inflation, oil embargos, and impeachment were all big topics in the 70s. Like now, those were uncertain times. But the 80s marked the start of a long period of growth with only one major recession in 2008 and 2009. This means that Americans are generally richer than they were. This isn't true for all people in all places, but the majority of Americans now have higher purchasing power. Inflation is also much lower than it was. US inflation peaked at over 13% in the 80s and fell to less than 3% in the past decade. This could lead contestants to think prices have gone up more than they actually have. This would be especially true for contestants that lived through times of higher inflation.
Second, new technology makes remembering prices feel useless. Anyone can check prices on the internet, often from a smartphone while shopping. Complicating matters, prices now also change more frequently. Online sellers can adjust to supply and demand in real time, which makes remembering prices even more futile. However, just because consumers don't remember prices doesn't necessarily mean the price isn’t important. It’s hard to precisely measure the influence of this factor on price salience and rational inattention.
Lastly, there are also factors that could be specific to the rules of The Price is Right. Hartley noted that the strategy of guessing $1 for the price of a product grew over time. Any contestant that bids too high loses. However, even after controlling for the effect of $1 bids, the overall results remain the same. It's also possible that more contestants bid $1 because they didn't have any idea what the price was, which would tend to strengthen the hypothesis of higher rational inattention over time.
Hartley addressed the study more to policymakers than business owners. His concern was macroeconomic policy rather than how much your next product should cost. But businesses should take note. Pricing can often seem like a black art, but its effects can be measured. While this certainly isn’t the only study trying to understand how price influences consumer decisions, it’s a unique one. Data sets about how consumer behavior changes over time and in different conditions are hard to come by. Here’s to another 47 years of 70s motifs and good data from The Price is Right.
Download the full study here.