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

• “Note that he relies on you”; how a single sentence enhances altruism in a Dictator game
• Altruism: a research program
• More than Trust: Oxytocin Increases Generosity

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.
• Sherwin, A. (2007) How much is Radiohead’s online album worth? Nothing at all, say a third of fans. The Times.
  
• http://www.whatpricedidyouchose.com