Natural Rationality | decision-making in the economy of nature

10/12/07

The Dictator Game and Radiohead.


As you may know, Radiohead recently announced that they would let fans decide what to pay for its new album, In Rainbows. The situation is thus similar (but not exactly) to a Dictator Game: player A spits a "pie" between her and player B, but B accepts whatever A offers. Thus, contrarily to the Ultimatum Game, B's decisions or reactions has no influence on A's choice behavior. Radiohead fans were thus in a position similar to A's position. If we make the assumption that they framed the situation as a purchasing one in which they choose how much of the CD price they want to split between them and the band, and given that a CD is typically priced £1o (roughly 20 U.S.$), then the fans are choosin how to split 10£ between them and Radiohead. Usually, experimental studies of the Dictator Games shows that 70% of the subjects (A) transfer some amount to Players B, and transfer an average of 24% of the initial endowment (Forsythe et al. (1994). Hence if these results can generalized to the "buy Radiohead album" game, it would suggest that about 70% of those who download the album would pay an average of £2.4 , while 30% would pay nothing. An online survey (by The Times) showed that this prediction is no too far from the truth: a third of the fans paid nothing, and most paid an average of £4.

An internet survey of 3,000 people who downloaded the album found that most paid an average of £4, although there was a hardcore of 67 fans who thought that the record was worth more than £10 and a further 12 who claimed to have paid more than £40.

Radiohead could have earn more money just by using a simple trick: displaying a pair of eyes somewhere on the website. With this simple trick, Bateson et al. dicover that people contribute 3 times more in an honesty box for coffee when there is a pair of eyes than when there is pictures of a flowers (Bateson et al., 2006)

Also, when a pair of eyes is displayed in a computer screen, almost twice as many participants transfer money in the dictator game (Haley & Fessler, 2005).

The New York Times has a good piece on fan's motivation to pay, with an interview of George Loewenstein: Radiohead Fans, Guided by Conscience (and Budget).

Related posts

References
  • Bateson, M., Nettle, D., & Roberts, G. (2006). Cues of Being Watched Enhance Cooperation in a Real-World Setting. Biology Letters, 12, 412-414.
  • Forsythe, R., J. L. Horowitz, N. Savin, and M. Sefton, (1994). Fairness in Simple Bargaining Experiments. Games and Economic Behavior, vol. 6(3), 347–369.
  • Haley, K., & Fessler, D. (2005). Nobody’s Watching? Subtle Cues Affect Generosity in an Anonymous Economic Game. Evolution and Human Behavior, 26(3), 245-256.
  • Hoffman, E., Mc Cabe, K., Shachat, K., & Smith, V. (1994). Preferences, Property Rights, and Anonymity in Bargaining Experiments. Games and Economic Behavior, 7, 346–380.
  • Leeds, J. (2007). Radiohead to Let Fans Decide What to Pay for Its New Album. The New York Times.
  • How much is Radiohead’s online album worth? Nothing at all, say a third of fans. The Times.
  • http://www.whatpricedidyouchose.com



4 Comments:

G.V. said...

What I find interesting is the fans paid slightly more than predicted for a digital download and not for a CD. In this case, probably the term of comparison should the average ITUNES album price £7.99, which shows how fans paid even more..

G.

PS. Great blog, great posts, a pleasant reading..

Benoit Hardy-Vallee said...

Hi G.V.,

thanks for your comment!
It's true, the best comparison would have been with Itune albums; in this case, it means that they paid about 50% of the "pie", which is even more generous. But still, about 33% paid nothing, so it still has a "Dictator" pattern.

Best,
Benoit.

Nicholas said...

Thanks for this more in-depth analysis Benoit. What I'd like to know is what radiohead would receive from the record industry for each cd they sell versus the 4 GBP that they receive from people buying their cd online.

Also, I think radiohead's fan base gives them more flexibility here. Typically bands sign over a majority of profits from sales to a record company in exchange for lots of promotion. For small unknown bands this might drastically increase their fan base, though these days I think the barriers to that are lowering.

Anibal said...

That´s mean that people does not value Radiohead art?