Symposium: Delusional Anchoring

I maintain that John’s use of anchoring is, in fact, delusional.  John saw one free comedy show (ASSCAT at the Upright Citizens Brigade Theater, in case you were wondering) that he really enjoyed.  The guest monologist and the cast of the show change on a weekly basis, but for the purposes of this argument I’ll assume that the show is very good on a weekly basis.

John should have a willingness to pay for comedy shows independent of the actual cost of a particular show. So, let’s say his willingness to pay for a “really good” comedy was $15 before he saw any comedy show. Then, he goes to UCB and his willingness to pay drops to zero (well, it’s actually higher than zero because of opportunity cost and cost of travel…). This does not make sense unless John is the most risk-averse person in America. The fact is reviews and friends’ suggestions are imperfect but we use them anyway because they have some use. Gran Torino, for instance, got very positive reviews but based on what the reviews were praising, it was very clear to me that I would not like the movie (I did not see the trailer). Likewise, I trust the judgment of certain friends on particular topics more than others (I generally do not trust Tim, for instance, when it comes to french fries).

These review-filtering mechanisms can result in a decent confidence that a show is not going to be a flop. Of course there is going to be some uncertainty, which can lead to both positive (an exceptionally good show) and negative results.  Unless John is completely risk-averse, he should be attending shows if the expected value (based on reviews and reputation) meets a certain threshold, say the “really good” threshold. What about price? Well, his price cap should be based on his initial willingness to pay. If he were originally willing to pay $15 for a “really good” comedy show, then—if that expected value is met—he should still be willing to pay $15.

If John follows his philosophy all the way, he will just be looking at all the free shows, which surely include some good shows but probably a lot of bad ones, as well. Ultimately, he’s going to need to look at reviews to discriminate between the good and bad in order to decide which free shows to go to. So, I really don’t understand how he’s overcoming informational asymmetry. The price is giving him absolutely no information about the quality of the show, which is the information gap he is referring to. The only show he has any certainty about is the original UCB show, and surely his taste for comedy is diverse enough that he’d like to see shows other than that one.

Finally, the movie example is not a fair analogy. In movies, there is a fairly uniform market price (say $8-$12 depending on where your market is) to see a movie in the theater. So, the first time you see a movie, it is likely that that price is representative of the broader market price. The fact that the first theater you go to is arbitrary, then, does not really matter. This is NOT the case with comedy venues where the first venue John went to had a very meaningful impact since there is not a uniform market price.

I rest my case.

3 responses to this post.

  1. […] UCB. No Comments I was at an Improv show the other day (in fact, it was referred to in the Anchoring Symposium) and the host asked audience members for a word, any word in order to get the guest monologist (a […]

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  2. […] at NPI all have an interest in comedy (see John S. and Josh’s Anchoring Symposium for how this interest has led us to intense if obscure economic debates) so we […]

    Reply

  3. […] in low-rent areas (which usually results in great food) due to Discover Your Inner Economist, try to resist anchoring due to Predictably Irrational, and will have no hesitancy about naming my future daughter Laquisha […]

    Reply

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