Trillion Dollar Economists

Chapter 3The Price Is Right

One of the earliest television shows I watched as a young child was The Price Is Right, hosted for many years by Bob Barker. I loved the show so much that occasionally I would feign illness to stay home from school (exactly how will remain a secret) to watch.

At this writing the show is still on and I suspect it will remain a television staple for years to come. There may be a few readers of this book who haven’t seen The Price Is Right, but for those who haven’t, the format is quite simple. Three contestants are chosen from the audience to participate in a two-round contest in which they are shown various items and asked to guess the price of each. A key rule is that a contestant automatically loses if the price is too high, but the contestant closest to the right answer on the low side wins a prize. The prizes are larger in the second round than in the first, and typically the winner from the first two rounds plays a guessing game one final time, by themselves, for one large prize.

Ask people in business and they’ll tell you that after coming up with a product or service to sell—a task whose difficulty I do not want to understate—the first decision they must make is to figure out what price to charge. They are like the Price Is Right contestants, with one big difference: When businesses set prices it is not a game; it can be a (business) life or death decision. As one of the most respected and thoughtful entrepreneurs I’ve met, Norm Brodsky (with ...